A and B never signed a partnership deed, but for three years they have run a shop together, contributed capital and shared profits and losses equally. The firm is unregistered. Under the Indian…
Question and options
A and B never signed a partnership deed, but for three years they have run a shop together, contributed capital and shared profits and losses equally. The firm is unregistered. Under the Indian Partnership Act, 1932, what is their position?
They are not partners, as their firm is not registered
They are partners by status, since they share the profits
They are partners under an agreement implied from their conduct
They are not partners, as their agreement is not in writing
Answer and explanation
Under sections 4 and 5 of the Indian Partnership Act, 1932, partnership arises from an agreement, which need not be written and may be inferred from conduct; carrying on a business together and sharing its profits and losses shows such an agreement. Registration is not needed for a partnership to exist; non-registration only has the consequences in section 69. Partnership arises from contract, not status, and under section 6 sharing profits alone does not make persons partners.
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