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CS Professional · CSR and Social Governance · Partnership Firms

Three members of a Hindu undivided family, Suresh, his brother Mahesh and his uncle Dinesh, run a family business. They later sign a written deed agreeing to carry on a new trading venture in the firm name 'SMD Traders' and to share its profits in a fixed ratio. Which statement is correct?

They are partners in SMD Traders. Partnership arises from contract and not from status, and the deed shows an agreement to share profits of a business carried on by all. Being members of the same family does not prevent a contractual partnership.

  1. AThey cannot be partners because they belong to the same HUF
  2. BThey are partners in SMD Traders because the relation arises from their contractCorrect
  3. CThey are partners only if the family business is first wound up
  4. DThey are partners only if the karta alone signs the deed

Explanation

Section 5 denies partnership only where the family carries on the family business as such. Here the members have made a contract to share the profits of a business carried on by all, which satisfies Section 4. Family ties do not bar a contractual partnership.

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