Contract is the Essence of Partnership Business - QS Study
QS Study

“Contract is the Essence of Partnership Business

A contract is the essence of the partnership business. The document in which the respective rights and obligations of partners are settled is identified as partnership contract or deed. A deed may be oral or written. But the written document is preferred to other documents, Partnership Act 1932 (sec-5) pointed out, “Partnership relation arises from the contract and not from status”.

The following issues clarify the topic more brightly:

Inherent right: It the son becomes the owner of a firm after the death of his father, he leads if he gets profit as per inherent rights. Although for that moment he seems to have been partners of business but in reality which is stated by partnership act that he can’t be a partner of the partnership business. The business has not been maintained by under contract relation.

Retired partners: When the retired partners take a leave from partnership business he may keep his capital in the business and get profit as usual. After leaving from the firm the contract relations finish to exist. Although he gets the portion of profit he will not be considered as a partner of the partnership business.

Hindus joint family business: Generally, Hindus Joint families do business mutually and distribute acquired profit among them. As it is not the result of a contract, so it can’t be said a partnership business.

Family relationship: Particularly the inheritors avail the portion of profit after the death of any partner. Despite they get the portion of profit but are get to consider a partner as they are beyond partnership deed.

Designation: Partnership deed arises from a contract, not from the designation. If any partner gets the benefits from the firm after investing goodwill that firm, on the other hand, he will not be treated an inclusive partner since no contract with him is held in earlier.

Social position: If a number of artists acquire income from showing exhibition socially then it can’t be said partnership business because no contract is signed between them.

From the above discussion, it is clarified that if partners reluctant to prepare deed with other partners then the relation held among them it is beyond partnership business. So we can say that contract is the essence of the partnership business.