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Can a Partnership Firm become a Partner in another firm?

A Partnership business is formed by an agreement between an association of people who agree to split the net profit of a firm that they all, or any one of them, actively operates. However, even though each person stands to gain something, if two or more people come together to make a bulk purchase and divide the goods among themselves in order to benefit from the bulk purchase, those individuals cannot be referred to as partners. This is because buying goods without any intention of selling them cannot be considered to be a business. Additionally, not every person who receives a profit share must be a partner. What, then, is a partnership?
Can A Partnership Firm Become A Partner In Another Firm
Business entities that are operated as partnership firms are governed by the Indian Partnership Act of 1932. The Act regulates the partners’ relationships with the firm, one another, and other parties, as well as their rights and obligations. A partnership firm is a type of business that is founded by two or more people who strive to achieve the same objective mutually agreed between them and outlined in the agreement. All the partners divide the business’s overall earnings in a particular ratio, as pre-determined and mentioned in the partnership deed. If you want to start a partnership firm, you should be aware of the requirements for its eligibility and other necessary conditions for its formation. In this blog, you will get all the information about how a Partnership Firm can become a Partner in another firm. Let’s dig into the details!

Table of Contents

What is a Partnership Firm?

A partnership firm is made up of a number of people who choose to form a single legal entity for their business. They establish a partnership to split the earnings from the company, which is run either by all of the partners together or by one partner on behalf of the other partners. An agreement that was created between them governs and controls the partnership that was thus formed between them. One of the most prevalent types of commercial organizations in India is partnership firms.

Qualifications for joining a Partnership Firm as a partner

You must be aware of the requirements to become a partner if you plan to start a partnership firm. The following are the standards established by the Partnership Act’s provisions:
  • Any person who is above the prescribed legal age and is of sound mind.
  • Any person who has the legal capacity to form a contract or agreement is eligible to join the partnership company.
  • Hindu undivided families (HUFs) or Kartas are also eligible to join as partners in a partnership firm.
  • A public or private limited company is regarded by Indian law as an artificial legal entity. Consequently, if permitted by an article, public or private limited businesses may join as a partner in a partnership firm.
  • Trustees of religious trusts, family trusts, or any other religious endowments may be partners in a partnership firm unless and until expressly prohibited by the constitution.

Can a partnership firm join another firm as a designated partner?

A Partnership firm cannot become a partner to another partnership firm since neither the Partnership Act nor any other law has recognised partnership firms as a legal person. However, the partners of a Partnership firm may join other partnership firms as partners.

Maximum and Minimum partners permitted in a Partnership Firm

“A partner” is any individual who has formed a partnership with another individual in order to operate the business. A partner in a partnership firm serves as both the agent and the principal for both himself and the other partners.
The action of each partner is binding on that of the other partners. The minimum number of partners in a Partnership firm is 2, while the maximum number is 20.

What are the types of Partnership Firms in India?

The numerous kinds of partnership firms include the following:
  • Partnership at Will: In this type of partnership, there is no agreement or provision addressing how long the partnership would last. As a result, the partner may dissolve this type of partnership at any time.
  • Fixed-term Partnership: In this case, the partners agree on a specific time frame for the arrangement. As a result, this style of partnership firm has a fixed duration of existence. The Partnership terminates at the end of the term as mutually agreed.
  • Particular Partnership: A partnership is a type of entity created specifically for a given purpose or objective. The agreement specifies the type of business activities that will be conducted by the firm. The partnership is dissolved once the project or pre-determined activity is completed.
  • General Partnership: This type of partnership firm is created to conduct business generically and has no specific scope or purpose.

Necessary elements of a Partnership Agreement

A prior agreement termed as the “Partnership Agreement” or the “Partnership deed” must be formed which should be mutually agreed and signed by all the partners. Since a partnership is the product of a contract, a minimum of two individuals are required to form one. The details that a partnership agreement usually contains have been listed below.
  • Partners’ responsibilities
  • Their duties, and obligations
  • the ratio and rate of profit- and loss-sharing
  • other issues, such as capital contributions, withdrawals, and financial reporting
  • Profit is divided among partners in proportion to the money they have invested or, if less, in accordance with the terms of their agreement
  • Sharing of loss is not a requirement of the contract, but it must be paid for in the profit-sharing ratio in the event of damage or loss
  • The last prerequisite for a partnership firm is that each partner, or any one of them acting on their behalf, must have a specific objective for conducting business. If there is no desire to operate a business, a partnership cannot exist

Conclusion

If you’ve made the decision to start a partnership firm or join any partnership firm as a partner, you should be fully aware of all the necessary requirements, guidelines, and restrictions. You should reach out to SetIndiaBiz to get your company ready for launch. Our expert professionals provide you all the information you need regarding setting up a partnership firm and the subsequent compliances that are necessary.

About Setindiabiz

Setindiabiz is an organized team of experienced CA, CS, & Lawyers, duly supported by a pool of trained accountants & paralegal staff that provides quality & affordable compliance services to startups & small businesses in India. The views, statements and recommendations expressed in this article or post are only for the sole objective of providing information, and it does not constitute professional advice or recommendation of the company. Neither the author nor the company or its affiliates accepts any liability for any loss or damage arising from any information in this article or any actions taken in reliance thereon.
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