A “Partnership” is typically defined as a
relationship between individuals i.e. two or more persons, who have agreed to
share the profits/ losses of the business, which is carried on by all or any
one of them acting for all. Such persons are called “partners” and the business
concern is known as “partnership firm”.
The document containing the terms of the partnership agreement, powers
of the partners and objectives of the partnership is known as a “partnership
deed”.
The Indian Partnership Act, 1932 (hereinafter
called the “Act”), governs the conduct of the partnership business and the
minimum number of partners prescribed is two, whereas the maximum number is 10
in case of firms doing Banking business and 20 in other cases.A minor can be
admitted only to the benefits of the partnership business. The partnership
concern is to be registered with the Registrar of Firms and on registration a
registration certificate is issued.
Section 14 of the Act defines what
constitutes Partnership property. The property of the firm is nothing but the
joint property of the partners held in their joint names as opposed to the
properties owned by the individual partners in their personal names. Partnership property consists of property originally brought in by the individual partners
as their capital contribution or may consist of property purchased by the
partners jointly out of the funds belonging to the partnership concern.
Issues may arise to determine the ownership/
title of the immovable property, in cases where either the property belonging
to a partner is put to firm’s use or in cases where the immovable property is jointly owned by the partners i.e. by the partnership firm and the same is converted
and title to a jointly held property is conferred to an individual partner. In
such cases the courts have drawn a judicious line to distinguish and
differentiate between the two.
Section 22 of the Act states that in order to
bind the firm and all its partners thereof, every act must be done in the name
of the firm or expressly on behalf of the firm. It is desirable to make the
firm duly represented by one or more of its partners as a party to any such
transaction.It is also clarified that a mere description of the signatory that
he/ she is a partner of a firm may not be sufficient to bind the firm. In cases
where an immovable property is to be acquired or sold off by way of purchase/
sale or by way of lease or otherwise, it is essential to make all or some of
the partners as parties and not just the firm in its name.
A Partnership is not a legal entity and the
name of the partnership firm is only a collective expression representing all
the partners constituting the firm. Thus a transfer of property can only be made by or in favor of a legal or juridical person as provided in Section 5 of
the Transfer of Property Act.
A Partnership firm unlike a Company
registered under the Indian Companies Act, does not have a separate legal
identity, different from partner and a partnership firm cannot sell or purchase
property in its name.A partner has no
implied authority to sell or buy any immovable property on behalf of the
partnership. The legal entity is the
partner himself.All partners in their
individual capacity should also join as parties to the agreement to sell or to
the conveyance deed and execute it in their individual capacity. When an
immovable property is transferred to a firm it vests in all the partners of the
firm and not in the firm, since the firm has no separate legal existence.
At certain times, a single partner represents
the partnership firm, which is not a correct practice.In such cases, the said partner should have
power of attorney or authority of other partners to execute the documents.Even
if a partnership is formed between an individual and a partnership firm the
deed of the partnership should be signed by all the partners of the firm.Transfer of property by or in favor of a firm without the names of partners is
ineffective.
However, the distribution of the assets of
the firm on dissolution, where a partnership property is divided or distributed
among partners or taken over by one or more partners from others, does not
amount to transfer of property and needs no registration.Such a deed attracts stamp duty under a
separate category Dissolution deed and not as a conveyance deed.
If the property purchased was in the name of
a partner of the firm and on his death, his share, right, interest in the property would vest in his heirs or legal representatives. In case of transfer
of such property, the heirs/legal representatives of the deceased partner
should also join the execution of the document.
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