PARTNERSHIP

Section 190 of the Law of Contract Act [Cap. 345 R.E 2002] defines partnership as the Relationship which subsists between persons carrying on business in common as defined with a view of profit. A person who enters into partnership with other are collectively called a “Firm” and the name under their business is carried on is called the “Firm Name”.

Essential elements for existence of Partnership

Section 190 provides a  number of elements to exist so as a partnership can also be exist;

1. There must be a relationship;

S. 191(1), The relationship arises from contract and not from status. Is a contractual relationship stipulated in the Partnership Deed and Articles of Partnership. It is only those who have capacity to enter into a contract can form a partnership.

2. Such relationship subsists between persons;

The law stipulates clearly that, the partnership can be formed between or among persons. The question is, what is the maximum number of people to form a partnership? The answer to this question is provided under section 463 of the Companies Act [No. 12 of 2002]. It provides:

S. 463 No company, association or partnership consisting of more than twenty person shall be formed for the purpose of carrying on any business that has for its object the acquisition of gain by the company, association or partnership or by the individual member thereof, unless it is registered as a company under this Act or is formed in pursuant of some other Act, or of letters patents:

(a) Carrying on practice as solicitor or accountant, of a partnership consisting of persons each of whom is a solicitor or accountant as the case may be;

(b) Carrying on business as member of a recognized stock exchange, of a partnership consisting of persons each of whom is a member of that stock exchange.

By virtue of the above provision, the maximum number of partners to form partnership should not be more than 20. however, for those who form partnership for purpose of conducting professional services like lawyers, accountants and those who work with the stock exchange may be more than 20 as the case may be.

3. Carrying on Business

The primary aim of a partnership is to carry on business and not charitable work. Therefore, a partnership is formed for purposes of carrying on business as professionals in continuity manner.

4. Carrying Business in Common; and

The business through partnership must be carried on in common. For partnership to exist, partners must have common purpose and aim. Above all they must trust each other with utmost good faith, because the liability of a partnership is business liability of all partners and the liability of one partner is the liability of all partners.

5. Carrying business with the view of making profit.

Partners must strive to carry on business with the aim of making mutual profit, but sharing of loss is not necessary. Sharing of profit is not a conclusive test of the existence of partnership, although it is prima facie evidence of the existence of partners in the market.

Important documents for the formation of Partnership

The important document for formation of partnership is the Partnership Deed.