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Meaning of a Partnership

The Partnership Act, 1932 (“the Act”) defines a partnership as 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. Therefore, the critical aspects of a partnership are:
  • The existence of an agreement (written or oral)
  • Agreement must contemplate share of profits of a business
  • The business must be carried on by all, or any of them, acting for all of them.

The existence of a method of sharing of the profits does not, by itself, create a partnership, whether it is the sharing of the gross returns or profit, or the payment of compensation. The existence of a partnership is determined by looking at all facts together. Therefore, there is a partnership in existence, when the persons in question come together for only a limited period of time, to complete a particular task.


It is usually the conscious decision of an entrepreneur to use a partnership entity for a business. A formal partnership can be created by having an instrument in writing which sets out its terms in detail, and is known as the partnership deed. From the perspective of an entrepreneur, it is important for the entrepreneur to know the following:


If there is no written agreement, what rules apply to the partnership by default, or if there is no provision in the written agreement with respect to certain matters? Which rules may be customised in the partnership deed at the desire of the entrepreneur or the need of the business?


How to convert the business into another business form?

Conversion into another business form may be required to seek investment, to scale up the scope of operations or to invite public money.


Is the entrepreneur personally liable even after ceasing business, or after converting to another entity?

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