We have observed that a partnership may be formed by oral or by written agreement or an agreement of partnership can be inferred from the conduct of the parties.
Basic facts that must born in the mind of a person desirous of entering into an agreement of partnership are as follows::
1. The successful working of a partnership depends upon mutual confidence and utmost good faith among the partners because each partner is an agent of others and binds them to the fullest extent of their fortunes. It is therefore, necessary that the partners of a firm be selected with extreme care and caution.
ADVERTISEMENTS:
There goes a saying: “Do not be in too great a hurry while selecting a partner. Choosing a partner is like choosing a wife, marry in haste and repent at leisure.”
2. All the essential elements of a valid contract must be present. There must be free consent of the parties who must be competent to contract and the object of the partnership should not be forbidden by law or immoral or opposed to public policy.
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3. The mutual rights and obligations of partners must be discussed in detail and should be put in black and white in the shape of a “partnership deed,” before the partnership is actually started.
ADVERTISEMENTS:
An oral agreement may be alright till the going is normal but in times of adversity or windfall gains, there may be dispute among the partners, on sharing the losses or profits respectively.
In such circumstances an oral agreement is futile as on its basis it is difficult to prove that such and such conditions were agreed upon. It is therefore; best to have a written agreement.
4. The partnership should be registered as soon as it is formed with the Registrar of Firms of the area. In the absence of registration, the firm will not be able to enforce its legal remedies against outsiders, and the partners also cannot enforce the conditions laid down in the ‘partnership’ deed’ through a court of law.