Test Of Partnership

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In determining whether a partnership exists or not, or whether a person is a partner or not the real relation between the parties as shown by all relevant facts, must be taken into consideration.

The joint use of property in common in business for sharing of profits is evidence that a partnership exists. But this is not conclusive evidence to show that a partnership exists. Likewise, an active participation in the conduct of business is evidenced that a partnership exists. But again, it is no conclusive evidence to establish the fact of existence of partnership. For example, a servant may manage the affairs of a firm. Yet he is not a partner. In the same way, a joint venture having no object of profit sharing is not a partnership, while sharing of profits is evidence, though no conclusive, that a partnership exists. So, Section 6 lays down that the receipt of a share of profit, or a payment contingent or varying with the profits does not of itself, make the recipient a partner. Therefore, the true test of partnership is no sharing of the profit, but whether the relationship of agency exists or not.

 

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