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

Rekha, Sita and Tina agree orally to start a boutique and share profits in the ratio 2:2:1. Rekha says that since there is no registered deed, the firm has no legal existence as a partnership. What is the correct position?

A valid partnership exists. Under the Act, partnership arises from contract, and the contract may be oral. Neither a written deed nor registration is needed for the partnership to come into existence; registration only affects the right to sue.

  1. APartnership arises from contract and can be formed orally, so a valid partnership existsCorrect
  2. BA partnership exists only after registration with the Registrar of Firms
  3. CA partnership needs a written and stamped deed to exist
  4. DA partnership arises from status and needs no agreement at all

Explanation

The relation of partnership arises from contract, not status, and the Act does not require writing. An oral agreement is enough to create a partnership. Registration is optional and affects only the right to sue in certain cases, so the option on registration is wrong.

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