Persons who have entered into partnership with one another to carry on a business are individually called “Partners“; collectively called as a “Partnership Firm”; and the name under which their business is carried on is called the “Firm Name”
A partnership firm is not a separate legal entity distinct from its members. It is merely a collective name given to the individuals composing it. Hence, unlike a company which has a separate legal entity distinct from its members, a firm cannot possess property or employ servants, neither it can be a debtor or a creditor. It cannot sue or be sued by others.
It is only for the sake of convenience that in commercial usage terms like “firm’s property”, “employee of the firm”, “suit against the firm” and so on are used, but in the eyes of the law that simply means “property of the partners”, “employees of the partners” and “a suit against the partners of that firm”.
It is relevant to state that for the purposes of levy of taxes, a partnership firm is an entity quite distinct from the partners composing it and is assessable separately. But for all other laws, they are treated as the same because a partnership firm does not have a separate legal entity of its own.
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Definition of Partnership
Partnership Firms in India are governed by the Indian Partnership Act, 1932. As per Section 4 of the Indian Partnership Act:-
“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”
Thus as per the above definition, there are 5 elements which constitute of a partnership namely: (1) There must be a contract; (2) between two or more persons; (3) who agree to carry on a business; (4) with the object of sharing profits and (5) the business must be carried on by all or any of them acting for all.
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