Partnership
Also called: Firm, Partnership at will
Under Section 4 of the Partnership Act, 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.
Explained
Section 4 of the Indian Partnership Act, 1932 defines 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. The persons are individually partners and collectively a firm, and the name under which they carry on business is the firm name. A firm is not a legal person separate from its partners, which distinguishes it from a company and from a limited liability partnership, which Section 3 of the LLP Act, 2008 makes a body corporate.
Four elements follow from the definition: an agreement, a business, an agreement to share its profits, and the business being carried on by all or any of them acting for all. The last element, mutual agency, is the true test. Section 5 adds that partnership arises from contract and not from status, so members of a Hindu undivided family carrying on a family business are not partners. Section 6 directs the court to look at the real relation between the parties as shown by all relevant facts, and its Explanations make clear that sharing profits or receiving a share of profits as a lender, servant, widow or seller of goodwill does not by itself make a person a partner.
Where the contract makes no provision for the duration or determination of the partnership, it is a partnership at will (Section 7). Every partner is liable jointly with the others and also severally for all acts of the firm done while he is a partner (Section 25), and the firm is liable for the wrongful acts of a partner in the ordinary course of business (Section 26). An unregistered firm and its partners face the bars on suits in Section 69.
Examiners test the elements, the HUF rule, and the effect of an unlawful or void object. A partnership to carry on wagering is not unlawful, because a wager is void under Section 30 of the Contract Act but not forbidden by law.
What the law says
“Partnership” is 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.
Defines partnership, partner, firm and firm name
The relation of partnership arises from contract and not from status;
and, in particular, the members of a Hindu undivided family carrying on a family business as such, or a Burmese Buddhist husband and wife carrying on business as such are not partners in such business
Partnership arises from contract and not from status
In determining whether a group of personsisor is not a firm, or whether a person is or is not a partner in a firm, regard shall be had to the real relation between the parties, as shown by all relevant facts taken together.
Explanation 1.—The sharing of profits or of gross returns arising from property by persons holding a joint or common interest in that property does not of itself make such persons partners.
Explanation 2.—The receipt by a person of a share of the profits of a business, or of a payment contingent upon the earning of profits or varying with the profits earned by a business, does not of itself make him a partner with the persons carrying on the business;
Test of the real relation; profit sharing not conclusive
Where no provision is made by contract between the partners for the duration of their partnership or for the determination of their partnership, the partnership is “partnership at will”.
Defines partnership at will
Every partner is liable, jointly with all the other partners and also severally, for all acts of the firm done while he is a partner.
Joint and several liability of partners
(1) A limited liability partnership is a body corporate formed and incorporated under this Act and is a legal entity separate from that of its partners.
(2) A limited liability partnership shall have perpetual succession.
(3) Any change in the partners of a limited liability partnership shall not affect the existence, rights or liabilities of the limited liability partnership.
LLP is a body corporate, unlike a firm
For the exam
- Section 4: agreement, business, sharing of profits, and mutual agency.
- Mutual agency, not profit sharing alone, is the decisive test; Section 6 looks to the real relation.
- Partnership arises from contract, not status; HUF members are not partners (Section 5).
- No fixed term or mode of ending: partnership at will (Section 7).
- Partners are jointly and severally liable for acts of the firm (Section 25).
726 questions in the Law Maker question bank use this term. Practise Partnership and Sale of Goods Acts questions
Judgments
Related terms
- AgentA person employed to do any act for another, or to represent another in dealings with third persons; the person represented is the principal. Section 182 of the Indian Contract Act, 1872.
- PrincipalThe person for whom an act is done by an agent, or who is represented by an agent in dealings with third persons. Section 182 of the Indian Contract Act, 1872.
- ContractUnder Section 2(h) of the Contract Act, an agreement enforceable by law. Section 10 lists what makes an agreement a contract.
- Respondeat superiorA master or employer is liable for the wrongs of his servant committed in the course of employment, even though he did not himself commit them.
- Private companyA company whose articles restrict share transfer, limit members to two hundred (except a One Person Company) and bar public invitation to subscribe for its securities. Section 2(68), Companies Act, 2013.
Further reading
Checked 6 November 2026. Statutory text is quoted from the Bare Acts library, taken from India Code. See the full glossary.