Chapter II - The Nature of Partnership
Section 5
Section 5: Partnership not created by status
Section 5 makes partnership a matter of agreement: a person becomes a partner only by contract, never because of birth, marriage or family membership.
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Need advice on Section 5?
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
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, or a Burmese Buddhist husband and wife carrying on business as such are not partners in such business.
Key takeaways
Contract, not status
No one becomes a partner by birth, marriage or family relationship alone; there must be an agreement between the persons concerned.
Family businesses
Members of a Hindu undivided family carrying on a family business as such are not, for that reason, partners in that business.
Why the agreement matters
Section 4 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. Section 5 reinforces that the starting point is that agreement. However closely the persons are related, there is no partnership unless they have agreed to one, expressly or by implication.
Hindu undivided family businesses
The section's main example is a Hindu undivided family carrying on a family business as such: its members are not partners in that business. Family members who want a partnership must agree to form one, and section 6 then decides whether a partnership exists by looking at the real relation between the parties, shown by all relevant facts taken together.
Hypothetical business example
Hypothetical: Two brothers manage a shop that belongs to their family's joint business, and separately sign a partnership deed with an outside investor for a new venture. Section 5 means the shop does not become a partnership merely because the brothers are related. Whether the new venture is a partnership is decided under sections 4 and 6 on the basis of the agreement they signed and how the venture is actually run.
Check the applicable state law
The India Code consolidated central text (as on 7 July 2025) records no State amendment to section 5, although several States have amended other sections of the Act, mainly those on registration of firms. Confirm the law of the State where the firm carries on business, and the firm's own partnership agreement, before acting.
Practical checklist
Do
- Record any partnership agreement in writing, naming each partner and describing the business.
- Where family members also run a joint family business, document that business and any partnership business separately.
Avoid
- Do not treat relatives as partners only because of their family relationship.
- Do not assume a family arrangement is a partnership without an agreement that satisfies section 4.
Glossary
- Status
- A legal position that arises from birth, marriage or family membership rather than from agreement.
- Contract
- The agreement, express or implied, from which the relation of partnership arises.
Frequently asked questions
Can family members be partners?
Yes, if they agree to form a partnership. Section 5 only says that family status by itself does not create one.
Is a Hindu undivided family business a partnership?
No. Section 5 states that members of a Hindu undivided family carrying on a family business as such are not partners in that business.
Does section 5 require a written deed?
No. Section 5 requires a contract, which may be express or implied. Registration of firms is dealt with separately in Chapter VII of the Act.
Need help applying this provision to your situation?
Contact BizeneedLast updated 11 October 2026