Which of the following statements are true in the context of partnership?

(A)  Section 5 of the Indian Partnership Act 1932 defines partnership.

(B) A partnership firm has no separate legal entity.

(C) The maximum number of partners in a firm is 50.

(D) The liability of a partner of the firm is limited.

(E)  It is necessary to have partnership agreement in written form.

Choose the correct answer from the options given below:

B and C only

The correct answer is option 3- B and C only.

(A)  Section 5 of the Indian Partnership Act 1932 defines partnership- This is false as it is section 4 not section 5. When two or more persons join hands to set up a business and share its profits and losses, they are said to be in partnership. Section 4 of the Indian Partnership Act 1932 defines partnership as the  ‘relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all’.

(B) A partnership firm has no separate legal entity- This is true. Persons who have entered into partnership with one another are individually called ‘partners’ and collectively called ‘firm’. The name under which the business is carried is called the ‘firm’s name’. A partnership firm has no separate legal entity, apart from the partners constituting it.

(C) The maximum number of partners in a firm is 50- This is true.  In order to form partnership, there should be at least two persons coming together for a common goal. In other words, the minimum number of partners in a firm can be two. There is however, a limit on their maximum number. By virtue of Section 464 of the Companies Act 2013, the Central Government is empowered to prescribe maximum number of partners in a firm but the number of partners can not be more than 100. The Central government has prescribed the maximum number of partners in a firm to be 50.

(D) The liability of a partner of the firm is limited- This is false as liability is unlimited. Each partner is liable jointly with all the other partners and also severally to the third party for all the acts of the firm done while he is a partner. Not only that the liability of a partner for acts of the firm is also unlimited. This implies that his private assets can also be used for paying off the firm’s debts.

(E)  It is necessary to have partnership agreement in written form- This is false as it is not necessary that partnership has written agreement. Partnership is the result of an agreement between two or more persons to do business and share its profits and losses. The agreement becomes the basis of relationship between the partners. It is not necessary that such agreement is in written form. An oral agreement is equally valid. But in order to avoid disputes, it is preferred that the partners have a written agreement.