Last updated: July 17th, 2023 9:01 AM

Who is eligible for partnership?

Partnerships are popular business organizations where two or more individuals operate a business jointly to share profits and losses. However, not everyone can become a partner in a partnership firm. The Indian Partnership Act of 1932 lays down specific requirements that individuals must fulfill to be eligible to become partners in a partnership firm. This article will explore who is eligible for partnership and what conditions must be fulfilled to become a partner in a partnership firm. Understanding the eligibility criteria is essential for those who wish to form a partnership or become a partner in a partnership firm.

Who is eligible for partnership?

Here's a summary of who is Eligible for partnership: Under the Indian Partnership Act, the following entities are eligible to become partners in a partnership firm:

• Individual: Any person who is of sound mind, not a minor, not an undercharged insolvent, and not disqualified from entering into a contract by law can become a partner in a partnership firm.
• Firm: A registered partnership firm can become a partner in another partnership firm or any other business organization.
• Hindu Undivided Family (HUF): The Karta of a HUF can become a partner in a partnership firm in his capacity if he has contributed his self-acquired or personal skill and labor to the partnership firm.
• Company: Companies are juristic persons and can become partners in a partnership firm if their objects permit it.
• Trustees: Trustees of private religious trusts, family trusts, and Hindu mutts can enter into partnerships unless their constitutions or objects forbid it.

Requirements for individuals to become Partners in Partnership Firms

Indian Partnership Act 1932 specifies the eligibility criteria for partners in a Partnership Firm registration. The Act defines a partnership as "the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all." Under the Indian Partnership Act of 1932, there are certain requirements that individuals must fulfill to be eligible to become partners in a partnership firm.

• Capacity to Contract: A person must have the capacity to contract to become a partner in a partnership firm. This means that the person must be of sound mind, not a minor, not an undercharged insolvent, and not disqualified from entering into a contract by law.
• Agreement: An agreement between the partners is essential to form a partnership. The agreement should clearly state each partner's rights, duties, and obligations, the profit-sharing ratio, and the duration of the partnership.
• Consent: Every person who becomes a partner in a partnership firm must consent to the agreement. The consent should be free, voluntary, and not obtained by fraud, misrepresentation, or undue influence.
• Contribution: Every partner must contribute to the partnership firm. The contribution can be in the form of capital, skills, labor, or property. The contribution should be made to carry on the partnership's business.
• Sharing of Profits and Losses: Every partner in a partnership firm is entitled to share the profits and losses of the business. The profit-sharing ratio should be mentioned in the partnership agreement.
• Business Purpose: The partnership firm must conduct a legal business, not against public policy. The partnership cannot carry on a business that is illegal or immoral.
• Good Faith: Every partner in a partnership firm must act in good faith towards other partners and the partnership's business. The partners must not compete with the partnership business or exploit the partnership opportunities.

Disqualification of becoming a partner

Under the Indian Partnership Act of 1932, there are specific grounds for disqualification from becoming a partner in a partnership firm. These include

• A person who is of unsound mind or has been declared insane by a court
• A person who is below the age of 18 years
• A person who is an undischarged insolvent, i.e., whose debts have not been paid off or whose bankruptcy has not been resolved,
• A person who has been convicted of any offense involving moral turpitude or any offense under the Indian Partnership Act of 1932
• A person who is an alien enemy
• A person who is engaged in a restricted trade, i.e., a trade that requires a license, permit, or authorization

In conclusion, to be eligible to become a partner in a partnership firm, a person must have the capacity to contract, give his consent to the partnership agreement, make a contribution to the partnership, share the profits and losses of the business, carry on a legal business, and act in good faith towards other partners and the business of the partnership.