**PARTNERSHIP NATURE AND MEANING**
Partnership is an association of two or more like minded persons formed with a common objective to establish
a lawful business house of their choice with the idea of earning profits. However, in any business enterprise the
possibility of its incurring loss cannot be ruled out. Therefore, all partners of a firm mutually agree to share all
profits and losses of the business amongst them according to their predetermined shares/proportions fixed by
them in the partnership agreement.
Partnership is defined in Section 4 of the Partnership Act, 1932 as a relation between persons who have agreed to
share profits of business carried on by all or any one of them acting for all. Partnership requires three elements –
(a) an agreement entered into by all persons concerned; (b) distribution of the profits of business; and (c)
management of the business by all or any one or more of them acting for all, i.e., mutual agency. Out of these
three, the third element, i.e., the element of mutual agency, is most essential and it distinguishes partnership
from other type of contractual relationship between the parties. If this element is absent the partnership fails.
One partner is not only an agent of the firm but also of the other partners and, if so, can bind another which falls
within the scope of partnership subject to limitation under Section 20 of the Act.
A partnership is distinguishable from associations e.g., clubs, societies, co-operative bodies and incorporated
The real intention and conduct of the parties appearing from the (a) written agreement, or (b) verbal agreement
together with surrounding circumstances are the tests of partnership [Cox v. Hickman (1860) 8 HLC 268].
Persons who have entered into 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 (Section 4 of the Indian
Partnership Act, 1932).
A partnership agreement usually makes provisions for the duration of the partnership or for its determination.
Where no such provision is made the partnership is “partnership at will”.