Under the Indian Partnership Act, 1932, in which of the following situations would the person receiving…
Under Explanation 2 to Section 6 of the Indian Partnership Act, 1932 ('Mode of determining existence of partnership'), the receipt by a person of a share of the profits of a…
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Under the Indian Partnership Act, 1932, in which of the following situations would the person receiving a share of profits be a partner in the firm?
Answer and explanation
Correct answer C
Under Explanation 2 to Section 6 of the Indian Partnership Act, 1932 ('Mode of determining existence of partnership'), the receipt by a person of a share of the profits of a business, or of a payment contingent upon the earning of profits or varying with the profits earned by a business, does not of itself make him a partner with the persons carrying on the business; and, in particular, the receipt of such share or payment— (a) by a lender of money to persons engaged or about to engage in any business, (b) by a servant or agent as remuneration, (c) by the widow or child of a deceased partner, as annuity, or (d) by a previous owner or part owner of the business, as consideration for the sale of the goodwill or share thereof, does not of itself make the receiver a partner. However, where the widow of a deceased partner enters into partnership with the surviving partners by mutual agreement (Sections 4 and 5) and shares in the profits, she becomes a full partner in the firm.
Option feedback
Option A
Incorrect because under Explanation 2(b) to Section 6 of the Indian Partnership Act, 1932, the receipt by a servant or manager of a share of the profits of a business as remuneration does not of itself make him a partner.
Option B
Incorrect because under Explanation 2(a) to Section 6 of the Indian Partnership Act, 1932, the receipt of a share of profits by a lender of money to persons engaged or about to engage in any business does not of itself make the lender a partner.
Option C
Correct because while mere receipt of an annuity out of profits by a deceased partner's widow does not make her a partner under Explanation 2(c) to Section 6, where the widow enters into a partnership after her husband's death by agreement with the other partners and shares the profits, all elements of a valid partnership by contract under Sections 4 and 5 are satisfied.
Option D
Incorrect because under Explanation 2(b) to Section 6 of the Indian Partnership Act, 1932, the receipt by an agent of a share of profits as remuneration does not of itself make the agent a partner.
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