Partnership Formation in Delhi

Partnership Formation

Basic of Partnership

A partnership is an association of two or more persons to carry on, as co- owners, a business and to share its profits and losses. The persons who own the business are individually called partners and collectively called as Partnership Firm.

A partnership firms neither a legal entity nor a juristic person. It is only a compendious name given to partnership for the sake of convenience.

Though a partnership has no legal existence, it is recognized as a unit of assessment under income tax act and under some other tax laws.

Relation of partnership arises from contract not from status.


Who can become a partner?

  1. Only nature and legal person can become a partner
  2. Only such persons who are competent to contract can enter into a partnership.
  3. A minor cannot be a partner in the firm but he can be admitted to the benefits of partnership through his guardian with consent of partners. Minor is entitled to a share in the profits but not losses. His share in the firm is liable for the act of the firm, but he is not personally liable.
  4. Hindu undivided family (HUF) cannot enter in to partnership, but a Karta of HUF may become partner with others in his representative capacity. However when a Karta of joint Family enters into a partnership with strangers, the other members of the family do not ipso facto become partner in that firm.

Essentials of valid partnership

To constitute a partnership:-

  1. There must be a lawful business.
  2. There must be an agreement to share the profits of the business, and
  3. The business must be carried on by all or any of the partners acting for all.

Formation of partnership

An agreement is necessary for the creation of a partnership, this agreement may be made by an oral or a written one. However to avoid future disputes it is always advisable to have a proper deed of partnership.


Partnership deed

  1. A deed of partnership has to be properly stamped with stamp duty as prescribed in the respective state.
  2. While drafting a deed of partnership, care should be taken to embody the provisions relating to remuneration to partners and interest to partners as provided under the income tax act, 1961.
  3. A supplementary deed of partnership, may be executed to make any minor modification in the original deed of partnership e.g. changes in interest or remuneration to partners. However, it cannot be used for change in constitution of the partnership firm.
  4. A deed of partnership or dissolution of partnership, if it affects immovable property of the value of 100 or upwards, it is advisable to have it registered under the registration act.

Admission of partner

A person can be introduced into a firm only with the consent of all existing partners. A partner so introduced does not so become liable for any act of the firm done before he becomes a partner.


Retirement of partner

A partner may retire from a firm with the consent of all other partners. In case of a partnership at will any partner can retire by giving notice in writing to all the other partners of his intention to retire.


Registration of firm

A firm can be registered under partnership act with the registrar of firms. Registration is optional. If a firm is not registered it cannot avail the following benefits:

  1. The firm cannot file a suit in any court against a third party to enforce any right arising from a contract.
  2. No partner of such a firm can file a suit in any court against the firm or another partner to enforce a right arising out of a contract or conferred by the act.

For all practical purposes, it is advisable to have firm duly registered.


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