Coupon Accepted Successfully!


Cases where no partnership exists

Sec. 6 of The Indian Partnership Act enumerates, in its explanation, the cases where the partnership relation does not exist. They are

Explanation I of Sec. 6: Joint owners sharing gross returns

Joint owners of a property, sharing profits or gross returns arising from the property do not become partners.
Description: 27736.png

Explanation II of Sec. 6: Sharing of profits

The sharing of profit is a prima facie and a strong evidence of partnership, but it is not a conclusive proof. Therefore, if a person shares profits with another, it does not necessarily mean that he is a partner. The following cases do not evolve as a partnership:
  • Money lender receiving profits: A money lender is a person who lends money on interest. Sometimes, a money lender receives, in addition to or in place of his interest, a portion of profits of a business. In such a case, he cannot be said to be a partner, on the ground that he receives the profit of the business.
  • Example: Michael advanced money to Madan, a businessman, who agreed to carry on a business subject to the control of Michael in several aspects. Michael was to receive a profit of 10% on the total profit of the business. Michael was not a partner, though he shared profits with Madan.
  • Servant or agent receiving the profit: Sometimes a servant or an agent of a business agrees to receive, in addition to or in place of his regular remuneration, a portion of profits of a business. In such a case, he cannot be said to be a partner on the grounds that he receives the profit of business.
  • Example: Kamal, a businessman, appointed Vimal as a servant for loading and unloading railway wagons. The servant was to receive a fixed salary of ₹ 5,000 per month and in addition, 10% profits of the business. Vimal was not a partner even though he shared the profits of the business.
  • Widow or child of a deceased partner: Sometimes a widow or child of a deceased partner receives a portion of profits as annuity. In such a case, they cannot be said to be a partner of the firm on the grounds that they share the profits of the business.

Amit, Abhi and Aish are partners in a firm. Aish dies and the remaining partners agree to share the profits of the business with the widower of Aish. In this case, he will be not treated as a partner in the firm.

  • Seller of goodwill: When a person has sold his business along with its goodwill and receives a portion of the profits in consideration of sale, he will not be treated as a partner of a firm.

Matthew, a druggist, sold his business to Joey along with the name and style under which Matthew was carrying his business. It was agreed that Matthew will introduce all his clients to Joey and will do every reasonable act in promoting Joey’s business and Joey allowed a portion of his profit to Matthew. There was no partnership between Matthew and Joey.

Test Your Skills Now!
Take a Quiz now
Reviewer Name