Chapter II - The Nature of Partnership
Section 4
Section 4: Definition of partnership, partner, firm and firm name
Partnership is built on an agreement to share business profits, with the business carried on by all or any partner acting for all.
On this page
Need advice on Section 4?
This article is for general information. Refer to the Indian Partnership Act, 1932 official text for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
“Partnership” is 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.
Persons who have entered into partnership with one another are called individually “partners” and collectively “a firm”, and the name under which their business is carried on is called the “firm name”.
Introduction
Section 4 has three elements to test together: an agreement between persons, sharing of business profits, and business carried on by all or any acting for all.
A profit share alone does not answer whether there is mutual agency; examine the parties’ agreement and actual operation.
Key takeaways
Three elements
Agreement, profit sharing and business carried on by all or any acting for all must be considered together.
Firm name
The collective partners are a firm; the trading name is its firm name.
Apply the definition
Identify the persons and the agreement, including any oral or implied terms supported by records.
Check who may transact for the business and whether that person acts on behalf of the others.
Illustration
Two founders agree to share profits and authorize either founder to buy inventory for their joint shop. Those facts point toward the Section 4 relationship; the complete arrangement still matters.
Check deed and state law
For this firm, compare the partnership deed and actual mutual-agency arrangement with any applicable state amendment before relying on the central Section 4 text.
Practical checklist
Do
- Record the profit-sharing terms and authority to act for the business.
- Compare the signed deed with actual invoices, bank mandates and dealings.
Avoid
- Do not classify a relationship as partnership from a profit percentage alone.
Frequently asked questions
Does every profit-sharing arrangement create a partnership?
No. Section 4 also requires a business carried on by all or any acting for all.
Is the firm name a separate requirement?
The section calls the name under which the partners carry on business the firm name; identify it in business records.
Need help applying this provision to your situation?
Contact BizeneedLast updated 10 October 2026