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IAI Actuarial Core Principles · Business Management · Separate legal personality, directors' duties, shareholders and partnerships

Three friends in Pune, Asha, Bhavin and Chetan, run a consultancy together and share profits equally under an oral agreement, with no registration anywhere. Under the Indian Partnership Act, 1932, which statement is correct about their firm?

The firm is a valid partnership because partnership arises from an agreement, which can be oral, to carry on business and share profits. Registration is not compulsory, although an unregistered firm cannot sue third parties to enforce contract rights.

  1. AIt is not a partnership because the agreement is not in writing
  2. BIt is a partnership, because registration is not compulsory for its existence, although an unregistered firm faces limits on suing in courtCorrect
  3. CIt is a partnership only if it is registered with the Registrar of Firms
  4. DIt is a separate legal person distinct from the three friends
  5. It is a partnership only if there are more than five partners

Explanation

A partnership arises from an agreement, which may be oral, to carry on a business and share profits. Registration is optional, though an unregistered firm cannot enforce contract claims by suit against third parties. Option 0 wrongly requires writing, and option 3 is wrong because a general partnership firm has no separate legal personality.

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