Business Entities

Partnership

A partnership is a bond between two people who have agreed to share the profits of a business carried on by all or any of them acting for all. The individuals who have entered into partnership with one another are individually called ‘partners’ and collectively termed, ‘a firm,’ and the name under which their business is carried on is the ‘firm name.’ A partnership is governed by the Indian Partnership Act, 19323.

A partnership can be formed by an agreement, which may be either written or oral. If the written agreement is duly stamped and registered, it is known as a ‘Partnership Deed.’ If the firm is not registered, it will be deprived of certain legal benefits, such as when there are disputes between partners.

The Registrar of Firms is responsible for registering partnership firms. There must be a minimum of two partners, while the maximum number can be 10 in the case of banking business, and 20 for all other types of companies. The firm has no separate legal existence, i.e., the firm and the partners are the same in the eyes of the law. The liability of the partners is unlimited – they are jointly and severally liable for the liabilities of the firm. There are restrictions on the transfer of interest, i.e., none of the partners can transfer their interest in the firm to any person (except to the existing partners) without the unanimous consent of all other partners. The firm must be dissolved on the retirement, lunacy, bankruptcy or death of any partner subject to the provision of the Partnership Deed.4

NRIs/PIOs may invest in partnership firms (except those engaged in agricultural/plantation activities or real estate businesses or print media) with repatriation benefits only with the prior approval of the RBI. No person resident outside India, other than NRIs/PIOs, can make any investment by way of contribution to the capital of a firm. However, the RBI may, on an application made to it, permit a person resident outside India subject to such terms and conditions as may be considered necessary5.

  • 3.Partnership Act, 1932, Ministry of Corporate Affairs, http://mca.gov.in/Ministry/actsbills/pdf/Partnership_Act_1932.pdf, accessed 15 September 2020
  • 4.Ibid.
  • 5.Paragraph 3.2,.2 (iii) of Consolidated FDI Policy 2020, Department for Promotion of Industry and Internal Trade, http://dipp.nic.in/foreign-direct-in-vestment/foreign-direct-investment-policy, accessed 15 September 2020
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Rajiv Rajendran
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