Mode of determining the existence of partnership
The mode of determining the existence of a partnership involves identifying whether a partnership legally exists based on certain criteria and evidence. This is important because the legal status of a partnership affects rights, liabilities, and duties of the parties involved.
Key Ways to Determine the Existence of a Partnership
1. By Agreement (Express or Implied)
A partnership typically arises from an agreement between two or more persons to carry on a business together with a view to profit.
The agreement can be:
Express: Written or oral contract explicitly stating the partnership.
Implied: Inferred from the conduct or circumstances of the parties (e.g., sharing profits, joint ownership).
2. Sharing of Profits
Sharing of profits is generally considered prima facie evidence of a partnership.
If two or more persons share profits of a business, courts often presume the existence of a partnership unless proven otherwise.
Note: Sharing losses may also support the existence but is not always essential.
3. Mutual Agency
Partners are agents of each other, meaning one partner can bind the others by their actions in business matters.
Evidence of such mutual agency (authority to act on behalf of others) supports the existence of a partnership.
4. Conduct of the Parties
The actual behavior, such as:
Jointly managing the business,
Using a common business name,
Holding themselves out to third parties as partners,
Sharing liabilities and responsibilities,
can help establish a partnership.
5. Intention to Form a Partnership
Courts look for the intention of parties to enter into a partnership.
Simply working together or sharing profits may not always mean a partnership exists if the intention to form a partnership is absent.
6. Registration (Where Applicable)
In some jurisdictions, partnerships must be registered.
The existence of a registration certificate can be conclusive evidence of partnership.
However, registration is often procedural and not always necessary for the existence of a partnership.
Summary Table
| Mode of Determination | Description | Key Point |
|---|---|---|
| Agreement | Express or implied contract between parties | Foundation of partnership |
| Sharing of Profits | Profit sharing as prima facie evidence | Strongest indicator |
| Mutual Agency | Authority of partners to bind each other | Confirms partnership relationship |
| Conduct of Parties | Joint management, use of common name, public holding out | Shows partnership by behavior |
| Intention to Partner | Intent to form partnership | Essential element |
| Registration | Formal registration in some jurisdictions | Procedural proof |
Important Notes
Sharing of profits alone does not always create a partnership. For example, a person receiving payment as a debt or rent is not a partner.
Legal presumptions can be rebutted by showing the parties never intended to form a partnership.
Each jurisdiction may have specific rules or statutes defining partnership (e.g., the Partnership Act).
Do write to us if you need any further assistance.
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