Indian Partnership Act
Partnership and a Joint Hindu Family Business Compared
Both are ways a group carries on business together, but they arise from opposite sources. A partnership is born of agreement; a joint Hindu family business is born of status, of being a member of the family by birth. Section 5 puts it beyond doubt: the relation of partnership arises from contract and not from status, and members of a Hindu undivided family carrying on a family business are not partners as such. From that single difference flow all the others, in membership, management, liability and accounts. This note sets them out.
The four-gate test with a joint family business failing the agreement gate, and the two relationships compared feature by feature
1. The Root Difference: Section 5
§ Contract against status Section 5. The relation of partnership arises from contract and not from status; and, in particular, the members of a Hindu undivided family carrying on a family business as such are not partners in that business. A partner becomes one by agreement, and must be competent to contract. A coparcener becomes a member of the joint family business by birth, including a minor, without any agreement. |
2. Feature by Feature
Feature | Partnership | Joint Hindu family business |
|---|---|---|
How it arises | By agreement: Section 5 | By status and birth into the family |
Governing law | Indian Partnership Act, 1932 | Hindu law |
Members | Only those who agree, and who are competent to contract | All coparceners, including minors, by birth |
Admission of a minor | Only to the benefits, with consent of all: Section 30 | A minor is a member from birth |
Management | Every partner may take part: Section 12(a) | The karta manages; other members do not bind the family |
Agency | Every partner is an agent of the firm and the others | Only the karta can bind the family in the ordinary course |
Liability | Unlimited, joint and several: Section 25 | A coparcener's liability is limited to his share in the joint family property; the karta may be personally liable |
Right to accounts | A partner may demand accounts: Section 12(d) | A coparcener generally cannot demand accounts except on partition |
Death of a member | Affects the firm, subject to contract | The business continues; the share passes by survivorship or succession |
Transfer of interest | Only with consent of all: Section 31 | A coparcener cannot ordinarily transfer his undivided interest |
Number of members | Two to fifty | No statutory limit; membership is by birth |
3. Consequences of the Difference
§ What follows from contract against status • Who is in. In a firm, only those who agreed; in a family business, everyone born into the coparcenary. • Who can bind. In a firm, every partner; in a family business, only the karta. • What each risks. A partner risks his whole estate; a coparcener risks only his share, though the karta may be personally liable. • How each ends its share. A partner retires or the firm dissolves; a coparcener seeks partition. |
4. Where the Two Meet
i. A family can form a partnership. Members of a joint family may enter into a partnership with one another, or with outsiders, by agreement; they are then partners like any others, governed by the Act.
ii. A firm and a HUF as partners. A karta may enter into a partnership on behalf of the family, in which case he is the partner, and the other members are not partners in the firm.
iii. The test remains agreement. What decides is whether the relationship rests on contract or on status.
5. Frequently Asked Questions
Are members of a joint Hindu family partners in the family business?
No. Under Section 5, the relation arises from status and not contract, so members of a HUF carrying on a family business are not partners as such.
How does a coparcener differ from a partner?
A coparcener becomes a member by birth and his liability is limited to his share; a partner becomes one by agreement and has unlimited liability with mutual agency.
Who manages a joint family business?
The karta manages and binds the family; other members do not have the power to bind it, unlike partners in a firm.
Can members of a Hindu family form a partnership?
Yes. They may enter into a partnership by agreement, with one another or with outsiders, and are then governed by the Partnership Act.