What is a partnership?
The
first paragraph of section 4 of the Partnership Act defines partnership as a
relation between persons who have agreed to share the profits of a business
carried on by all or any of them acting for all. Partnership is thus neither a contract
nor an agreement but is merely a relation between persons how have entered into
an agreement.
Ascertainment
of partnership
The
question whether certain persons are partners in the legal sense depends upon
the legal relations proved. Whether there is a partnership and whether a person’s
is or not a partner therein is a question of fact which has to be determined
with regard to the relationship between the parties as shown by all relevant
facts taken together.
Existence
of business necessary for partnership
The
existence of a business is a sine qua non of a partnership. Mere co-ownership
of property does not amount to partnership though when utilized in business it
may become partnership property. Therefore the distinction between co-owners
and partners is that in the case of a co-ownership the co-owners do not intend
to carry on a business still less do they intend to share the profits realized.
On the other hand, in case of a partnership concern, the partners intend to
carry on business with money or property which belongs to both of them. They
intend to realize profits and share the same. Where property belonging to two
Muslim brothers was sold by them and the sale proceeds were invested in a running
business which was to be carried on by both of them. It was held that they were
partners.
Agreement necessary for partnership
To constitute
a partnership there must be an agreement between the parties; where no
agreement between co-owners as to the property they own. Such agreement may be express
or implied. The mere fact that the legatees or domes under a will or a deed
inter vivo, as the case may be, or heirs at law, happen to have common interest
in some business which is divisible amongst them would not make them partners.
But, if such persons continue the business either after the death of the
testator or when the inheritance falls on them. As the case may be, it could
not be postulated that there was no partnership. When the business is
continued, there is an implied agreement amongst the various individuals having
a common interest in the business.
Partnership
implies agency
The
essential distinction between co-ownership and partnership is that, in a partnership,
each partner is not only the principle but also an agent, whereas among
co-owners each is the owner of his share. In a partnership, a partner cannot
alienate his share without the onset of the other partners, whereas among
co-owner, a co-owner can alienate his share, which is binding on the other
co-owners.
Co-owner
may share profits
Co-owner
does not, of itself, create a partnership as to anything so owned even though
the owners agree to share any profits made by the use thereof; it is necessary
that there should be consent of all to trade as partners before there can be a
partnership. Part owners who divide what is obtained by the use or the
employment of the thing owned are not thereby constituted partners.
Points of difference between Partnership and co-ownership
The
following are the points of difference between partnership and co-ownership;
i.
Agreement
A
partnership is a result of agreement. Co-ownership is not necessarily the
result of agreement. It is generally created by the operation of law.
ii.
Agency
A
partner is an agent of the firm. He can bind the other partners for his acts.
The co-owner is not an agent of the business. He cannot bind the other
co-owners for his acts.
iii.
Lien
A
partner has a lien on the property of partnership. A co-owner has no lien on
the joint property of his co-owners.
iv.
Transfer of interest
A
partner cannot transfer his share without the consent of all the partners. But
a co-owner can transfer his interest or share in the property without the
consent of others.
v.
Common interest
In
partnership there is a common interest. But in co-ownership there is no common
interest.
vi.
Number of members
In a
partnership the maximum limit of partners is 20 for any type of business. In
co-ownership there is no maximum limit of co-ownership
vii.
Carrying on business
A partnership
is always made to carry on a business, Nut co-ownership does not necessary
invlve the carrying on of a business.
viii.
Partition
A
partner cannot demand a division of the property. But co-owners can demand the
division of the joint property.
ix.
Reimbursement
If a
partner spends some amount from his own pocket for the firm, he has a legal
right to get the amount of expenditure reimbursed. But a co-owner has no legal
right to claims reimbursement unless other co-owners agree for that.
x.
Regulation
Partnership
is regulated by the partnership Act, 1932. But there is no separate law to
regulate co-ownership.
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