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

Yash is a partner in a firm and also acts as its manager. His partners agree that he will take part in profits but will not contribute capital. A creditor asks whether Yash is a partner. Which statement best describes the legal position?

Yash can be a partner even without contributing capital. The Partnership Act does not make capital contribution an essential element. What matters is an agreement to carry on a business and share its profits, with mutual agency, all of which Yash satisfies.

  1. AYash is not a partner because he has contributed no capital
  2. BYash can be a partner, because contributing capital is not an essential condition of partnershipCorrect
  3. CYash is only an employee since he works as manager
  4. DYash is a partner only if the deed gives him a fixed salary

Explanation

The essentials of partnership are an agreement, a business, profit sharing and mutual agency. Capital contribution is not required. Yash shares profits and acts for the firm, so he is a partner. Receiving a salary does not decide the question.

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