Pandemic led lockdown had led to the shutdown of lots of business entities such as small companies, partnership firms, and other body corporate. These are due to the failure in accomplishment of their business according to their purpose and due to their incapacity to sustain because of many reasons. One of such categories of body corporate is the Partnership firms which are formed by partners. But, how is this body corporate being born or brought into action? What are the laws applicable for the same in India? This article will discuss the only partnership law in India that is Indian Partnership act, 1932, which governs all the partnerships across the country.

The object of the law:

Section 1 of the act states that all the sections of the Indian Partnership Act, 1932 came into force on the 1st of October 1932 except section 69 of the act, which came a year later, which is 1933 from the former on the same day. This act is now applicable and extends to the whole of India. The object of the law shall be known through the preamble of the act, 1932. Its object is to define what partnership is and to amend the laws that relate to the partnerships across the country.

What is Partnership? Who is a partner?

In order to determine what a partnership means, it is important to look into section 4 of the act, which talks about the definition of partnership. It states that the partnership is nothing but an agreement between two or more partners who agreed to share the profits of their business run by either all of them or one who acts on behalf of all. So, the definition would also make us question who is a partner and what the business is. If a person enters into an agreement with another partner or with another firm would be called the partner of the firm. The provisions are as follows,

“Partnership” is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Persons who have entered into a partnership with one another are called individually “partners” and collectively “a firm”, and the name under which their business is carried on is called the “firm-name”.

How does Indian law recognize the partnership?

Having seen the definition, it is clear that there should be an agreement between or among the partners, and that agreement is to share the profits and not for anything else. In the same manner, in order to determine the existence, section 6 provides a mode for the determination of this partnership’s existence. Firstly, there should be real relations between the parties, which are cited with relevant facts altogether. Explanations 1 and 2 of the section states that just because of the fact that the presence of there is sharing of profits among parties from the profits of the business shall not make them partners. What is required are the actual relations between the parties of the business.

Kinds of Partnership under the law:

The Indian Partnership act allows for the creation or allows the partners to enter into an agreement, and through the same, they can determine the duration of the partnership. As per the provisions of the act of 1932, if the contract entered by the parties expresses the duration, then such contract for the partnership shall come to an end once the period is completed or their object is reached. Whereas, if the same is not specified, then the partnership shall be deemed to be completed at the will of the parties to the same. So, this type of contract of partnership shall be called a partnership at will.

Also, according to this law, these contracts which are agreed by them shall state the rights and duties vested on each of the partners who have agreed and signed the same. For a company under the companies act, it is the prospectus of the company, Memorandum of Association, Articles of association which will talk about the company’s nature, rights, and duties of stakeholders of the company. It also prescribes what has to be done and how it has to be done. Similarly, for a partnership firm registered under this act, it is the contract that the partners entered which will ultimately define the terms and conditions applicable to them.

Registration of Partnership firm:

Chapter VII of the act, 1932, deals with the procedure and rules regarding the registration of a partnership firm in India. Section 58 deals with the procedure of application to the registrar. It states that the application form along with the original copy of the partnership deed should be signed by the partners or the agent appointed for that purpose and shall be sent in the form as prescribed under clauses (a) to (f) of section 58. Once the same is received through a postal copy by the registrar of that area, and if he is satisfied with the requirements and the firm’s object, then the application shall be made valid, and the form shall be entered in the register as a partnership firm in its prescribed name and shall be deemed to be registered as per section 59 of the partnership act, 1932.

Difference between a Partnership firm and A Company:

There are a lot of issues that arise when a case comes before the National Company Law Tribunal seeking permission to allow the partnership firm to go for mergers with another partnership firm as per section 230-232 of the companies act, 2013. It is clear that a partnership firm shall be registered as a company under the act. But, it is not allowed to perform all acts which a company shall do. To ensure the same, we shall look into few basic differences between them.

• With respect to laws and their applicability, a partnership firm shall be registered as a partnership act of 1932, whereas a company shall be registered under the companies act, 2013 if it fulfills the conditions of a company under section 2(11) of the act, 2013.
• Very importantly, unlike a company, a partnership firm shall not be regarded as ‘legal entity, even though it is a body corporate constituted under the partnership act.
• For a partnership firm, the mere contract is sufficient to be constituted. Whereas, as discussed earlier, a company requires more documents and procedures more than this.