How to - Agreement of partnership

Agreement of partnership

As stated above a partnership is constituted by an agreement between the partners. The agreement may be in writing or oral. But from the practical point of view and particularly in view of the provisions of other Acts such as the Income Tax Act as well as Partnership Act an oral partnership is not practicable, and therefore, a partnership agreement is necessarily required to be in writing.

Therefore, the mere fact that two persons as joint owners either as heirs or legatees are carrying on a business it does not necessarily mean that they are partners and if they want to carry on the business in partnership, then a Partnership agreement in writing becomes necessary. For example, if a person dies leaving a running business and his heirs continue to carry on such business, it will not be a business carried on in partnership and if they want to do so they will have to enter into a regular agreement of partnership.

Being an agreement and an agreement enforceable at law, such an agreement must fulfill the basic requirements of a valid contract, as required by the Contract Act. Therefore, a minor or a mentally handicapped person cannot enter into a partnership agreement though by virtue of the provisions of the Partnership Act a minor can be admitted only to the benefits of the partnership. But that only means that a minor can have a share in the profits of the business, but he cannot become a partner, and cannot execute any agreement of partnership.

Similarly if a partnership deed provides that on the death of a partner his heirs or any one or more of them should be admitted as partners or partner in place of the deceased partner even in such a case on the death of a partner his heirs or any of them do not become partners automatically on such death. But a fresh agreement of partnership will have to be executed between the existing partners and the heirs or heir of the deceased partner and if the heir is a minor the new partnership will stand postponed till the minor attains majority or if the surviving partners are more than one, the minor can only be admitted to the benefits of partnership.