A partnership is governed by the provisions of the Indian Partnership Act, 1932 (“Partnership Act” for short), which defines partnership under Section 4 as “the relation between persons who have agreed to share the profits of the business carried on by all or any one of them acting for all”. A Partnership arises from a contract, and therefore, such a contract is governed not only by the provisions of the Partnership Act in that regard, but also by the general law of contract in such matters, where the Partnership Act does not specifically make any provision. A minimum of two persons are required to start a partnership business. The maximum number of partners is 10, in the case of a banking business and 20 in any other case.
A partnership is constituted by an agreement between the partners. The agreement may be in writing or oral. But from the practical point of view and particularly in view of the provisions of other Acts such as the Income Tax Act as well as Partnership Act an oral partnership is not practicable, and therefore, a partnership agreement is necessarily required to be in writing. A Partnership Agreement/Partnership Deed must essentially consist of the name and address of the firm as well as the partners, nature of the business to be carried on, date of commencement of business, duration of partnership (whether of a fixed period/project), capital contribution by each partner and profit ratio amongst the partners.
A partnership firm can be registered as per the provisions of Sections 58 and 59 of the Partnership Act, 1932, though it is not compulsory. Every change in the constitution of a partnership is also required to be registered. But if it is not registered, then there are certain handicaps stated in S.69 of the Act. A partnership firm can be registered whether at the time of its formation or even subsequently. This can be done by filing an application with the Registrar of Firms of the area in which the business is located. Application for partnership registration should include the following information: Name of the firm, name of the place where business is carried on, names of any other place where business is carried on, date of partners joining the firm, full name and permanent address of partners and duration of the firm. Every partner needs to verify and sign the application. Once the Registrar of Firms is satisfied that the application procedure has been duly complied with, he shall record an entry of the statement in the Register of Firms and issue a Certificate of Registration.