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CA Foundation · Business Laws · The Indian Partnership Act, 1932

Kiran, Lata and Manoj agree to carry on business together, but they decide that the whole business will be run by Kiran, while Lata and Manoj only contribute capital and share profits. Which statement is correct?

It is a valid partnership. The definition of partnership allows the business to be carried on by all or any of the partners acting for all, so Lata and Manoj, though inactive, are partners through mutual agency with Kiran.

  1. AIt is not a partnership because Lata and Manoj do not act in the business
  2. BIt is a partnership, as business may be carried on by all or any of them acting for allCorrect
  3. CIt is a partnership only if Kiran is the eldest
  4. DIt is a sleeping arrangement outside the Act and is void

Explanation

The definition says the business may be carried on by all or any of them acting for all. Mutual agency is present because Kiran acts as agent for the others. So the arrangement is a valid partnership. The first option is wrong as active participation by every partner is not required.

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