Mode of determining existence of partnership
According to Sec. 4, in order to determine the existence of the partnership between groups of people, one must look at the agreement between them. If the agreement is to share the profits of a business, and the business is carried on by all or anyone of them acting for all, there is partnership, otherwise not. The difficulty arises when there is no specific agreement constituting a partnership among the partners, or the agreement does not specifically speak about the partnership.
In determining whether a group of people is or is not a firm, or whether a person is or is not a partner in a firm, weightage shall be given to the real relation between the parties as shown by all relevant facts taken together i.e., the written or verbal agreement, conduct of the parties, books of accounts, evidence of employees etc. These facts are not considered individually to ascertain the existence of a partnership, but are taken collectively and their cumulative effect is taken into consideration to draw a conclusion on the same.
The parties may expressly state in a document that they are not partners but they may turn out to be partners in the eyes of law, when all the other factors are taken into account. Again, the statement by the parties in a document that they are partners may not necessarily constitute them as partners in the eyes of law.