Partnership not created by status
📘 Partnership Not Created by Status
Meaning:
Partnership is not created by status means that simply being related by family, sharing a business, or any other social status does not automatically create a partnership.
In other words, partnership arises only from a clear agreement or conduct showing an intention to carry on a business together with a view to profit.
Explanation:
Under the Indian Partnership Act, 1932, partnership is a contractual relationship between persons who agree to share profits of a business carried on by all or any of them acting for all.
No one becomes a partner merely by virtue of their social or family status, ownership of property, or sharing of profits, unless there is an agreement or clear evidence showing partnership.
Illustrations:
Family Members Sharing Business
If family members share income or property, they are not partners unless they agree to carry on a business and share profits.
Sharing of Profits Alone Does Not Create Partnership
Sharing of profits is one factor, but if it is due to reasons like:
Salary
Interest on loan
Rent
Then no partnership is created.
Joint Ownership of Property
Joint ownership or co-ownership of property or assets does not by itself create a partnership.
Relevant Case Law
Madan Lal v. State of UP (1959)
The court held that mere sharing of profits does not necessarily mean a partnership exists if there is no intention to carry on business together.
Cox v. Hickman (1860)
Established that partnership depends on the intention to carry on business in common.
Why Is This Important?
Avoids presumption of partnership just because people share money or property.
Ensures legal clarity in determining when partnership liability and rights arise.
Prevents unintended liabilities from being imposed on individuals who are not actual partners.
Summary Table
| Situation | Partnership Created? |
|---|---|
| Family members sharing income | No, unless business and profit-sharing intention present |
| Sharing of profits as salary or rent | No |
| Joint ownership of property | No |
| Agreement to carry on business and share profits | Yes |
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