Chapter II - The Nature of Partnership
Section 6
Section 6: Determining whether a partnership exists
Section 6 requires the real relationship between the parties to be assessed from all relevant facts when deciding whether a partnership exists.
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Need advice on Section 6?
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
In determining whether a group of persons is or is not a firm, or whether a person is or is not a partner in a firm, regard shall be had to the real relation between the parties, as shown by all relevant facts taken together.
Explanation 1.—The sharing of profits or of gross returns arising from property by persons holding a joint or common interest in that property does not of itself make such persons partners.
Explanation 2.—The receipt by a person of a share of the profits of a business, or of a payment contingent upon the earning of profits or varying with the profits earned by a business, does not of itself make him a partner with the persons carrying on the business;
and, in particular, the receipt of such share or payment—
(a) by a lender of money to persons engaged or about to engage in any business,
(b) by a servant or agent as remuneration,
(c) by the widow or child of a deceased partner, as annuity, or
(d) by a previous owner or part owner of the business, as consideration for the sale of the goodwill or share thereof,
does not of itself make the receiver a partner with the persons carrying on the business.
Central rule and applicability
Profit sharing is relevant but does not decide the question by itself. Joint property returns alone do not create partnership. Nor does a profit-linked payment alone make a lender, employee or agent, a deceased partner's widow or child receiving an annuity, or a seller of goodwill a partner. The complete relationship must be assessed with the Section 4 definition.
Limits and related provisions
The listed payments are not blanket immunity from partner status: the words are does not of itself. Other facts may establish partnership. Conversely, calling a payment a profit share does not dispense with examining agreement, business and the acting-for-all relationship.
Hypothetical business example
Hypothetical: A lender receives a return linked to a shop's profits. The shop keeps decision-making and business authority with its owners. The adviser examines the full arrangement; the payment formula alone does not turn the lender into a partner.
Practical decision flow
Collect the agreement, conduct, authority arrangements and evidence of how the business actually operates.
Distinguish a genuine partnership profit share from the specific property, lending, remuneration, annuity or goodwill payments described.
Apply Section 4 and all relevant facts together, including any applicable state amendment, before classifying the relationship.
Check the applicable state law
This guide explains the central Section 6 baseline. State amendments, notifications and rules can affect its application. Confirm the law applicable to the firm's location and the relevant partnership agreement before acting.
Practical checklist
Do
- Collect the agreement, conduct, authority arrangements and evidence of how the business actually operates.
- Distinguish a genuine partnership profit share from the specific property, lending, remuneration, annuity or goodwill payments described.
- Apply Section 4 and all relevant facts together, including any applicable state amendment, before classifying the relationship.
Avoid
- The listed payments are not blanket immunity from partner status: the words are does not of itself. Other facts may establish partnership. Conversely, calling a payment a profit share does not dispense with examining agreement, business and the acting-for-all relationship.
Glossary
- Real relation
- The relationship shown by the complete relevant facts.
- Gross returns
- Returns from property before the profit calculation, whose sharing alone does not create partnership.
Frequently asked questions
Does profit sharing always prove partnership?
No. Section 6 expressly requires the real relationship to be considered from all relevant facts.
Does a profit-linked loan make the lender a partner?
Not by itself. Other facts and the statutory definition must still be examined.
Are the listed recipients incapable of being partners?
No. Their receipt of the listed payment alone is insufficient; a partnership may still be established by the full facts.
Need help applying this provision to your situation?
Contact BizeneedLast updated 10 October 2026