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What constitutes a partnership

A firm is strictly not a person; It is an association of persons and the agreement by which a firm purports to enter into a partnership with an individual or another firm merely makes the partners of that firm individual partners of the larger partnership. A firm as such cannot enter into an agreement as a partner with another firm or individuals.

Therefore, when one partnership enters into a partnership agreement with another partnership firm, the partnership is in fact between all the partners of both the firms.

The Supreme Court has observed that a partnership agreement creates and defines the relation of partnership and, therefore, identifies the firm. if that conclusion is correct, it is only a further step to hold that each partnership agreement may constitute a distinct and separate partnership and, therefore, a distinct and separate firm.

That is not to say that a firm is a corporate entity or enjoys a juristic personality in that sense. The firm name is only a collective name for the individual partners and each partnership is a distinct relationship. The partners may be different and yet the nature of the business may be the same, the business may be different and yet the partnership may be the same. And agreement between partners to carry on a business and to share its profits may be followed by a separate agreement between the same partners to carry on another business and share the profits therein. The intention may be to constitute two separate partnerships and two distinct firms or to extend merely the partnership originally constituted to carry on one business or to carrying on another business. It will depend on the intention of the partners. The intention of the partners will have to be decided with reference to the terms of the agreement and all the surrounding circum- stances including evidence as to interlacing or interlocking of management, finance or other incidentals of the respective businesses.

In other words, the same partners can form two different partnerships. The Supreme Court has held that the word 'person' in section 4 of the Partnership Act contemplates only natural or artificial or legal person and a firm is not a person and as such not entitled to enter into a partnership with another firm or H. U. F. or individual. In this view of the matter there can arise no question of registration of a partnership purporting to be between three parties viz. a firm, a H.U.F. and an individual as a firm.

A partner in his individual capacity can legally be a partner in a firm and the fact that he has secured his capital from another firm or that he has entered into partnership with other members of that firm in respect of his share in the first mentioned firm does not show that the other firm is a partner of the first mentioned firm or that the latter firm is not validly constituted. A divided member or some of the divided members of an erstwhile joint Hindu family can enter into partnership with a third person, but under some arrangement inter-se between other members of the divided family but the partnership will have no concern with the obligations of such divided members to other members of their family in the partnership and their shares in the partnership have nothing to do with their shares In the Joint family's divided properties.

Not only that but it has been held that the Karta of a H.U.F can enter into partnership with an individual member of that very family provided the member has contributed his own self acquired capital by way of money or other property to the capital of the firm. And the members personal skill and labour is held to be his property which can be a contribution to the capital of such a firm.' Similarly if a benamidar, who has the character of a trustee of the real owner, enters into partnership with another in his own name the share allotted to him in the partnership must be held to specify his individual share therein.' Shortly, therefore, the position is that partnership can be only between individuals and/or any other legal entity, and those who are actually parties to a partnership agreement will be considered as partners irrespective of their personal relationship with others inter-se and with which the partnerships will not be concerned, such as the beneficiaries if their trustee is a partner or the real owner If his benamidar is a partner or members of a HUF if their Karta is a partner or the partners of a firm if one of them is a partner of the other firm and so on.


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