Section 4 of the Indian Partnership Act, 1932 defines ‘Partnership’ as “Partnership is a relation between persons who have agreed to share the profits of business carried on by all or any of them acting for all.”


A contract of Partnership is a special type of contract. The persons entering into the contract are called

‘Partners’ and the collectively are called a ‘Firm’.



From the above definition the following can be drawn as essentials or characteristics of a Partnership Firm.

1)  Association of two or more persons :- There must be atleast two persons to form a partnership. The maximum no. of persons in a partnership is not provided in the Partnership Act but Section 11 of the Companies Act, 1956 provides for  the same. Accordingly, if the partnership firm is engaged in a banking business the maximum number of partners permissible is 10 and in case the partnership firm is in any other business the maximum number of partners permissible is 20.

2)  Presence of a Contract:- There is a contractual relationship between the partners. Therefore there must be a agreement between the partners. The agreement may be express or implied. This agreement must fulfill all the essentials of a valid contract under the Indian Contract Act.

3)  To conduct Business :- The idea of few persons coming together and doing some activity for charitable purpose  cannot  be  termed  as  partnership.  The  intention  to  conduct  business  is  essential  for  the partnership. The term business is defined in Section 2(b) as ‘business includes every trade, occupation and profession.’ The word business generally covers the intention of doing transactions to achieve some goal.

4)  Sharing of profits :-  The purpose of partnership should be to earn profits. The term profits means ‘net profits’.


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