Why Agreement is Mandatory for Partnership Firm? – Judiciary Exam

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WHY AGREEMENT IS IMPORTANT IN PARTNERSHIP FIRM ?

“Partnership is an agreement between persons having contractual capacity to carry on a business in common with a view to private gain.” – L.H. Haney

Section 4 of the Indian Partnership Act ,1932 defines ‘Partnership’ as under :
‘Partnership is the 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 Agreement

NEED FOR AGREEMENT

The Supreme Court has , construing the provisions of section 4 , observed that a partnership agreement is the source of a partnership , and it also gives expression to the other ingredients defining the partnership , specifying the business agreed to be carried on ,the persons who will actually carry on the business , the shares in which the profits will be divided , and several other considerations which constitute such an organic relationship .
A partnership agreement therefore , identifies the firm and each partnership agreement may constitute a distinct and separate partnership.

Oral , Written Or By Conduct

Agreement of partnership need not to be express, but can be inferred from the course of conduct of the parties to the agreement. If the parties to an agreement have not agreed on the date of commencement of the partnership, it cannot be said that they have become partners.
The Supreme Court, in Tarsem Singh v Sukhminder Singh, has held that it is not necessary under the ;Law that Every contract must be in writing. There can be an equally binding contract between the parties on the basis of oral agreement, unless there is a law which requires the agreement to be in writing.