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Can HUF become partner

Suresh (Partner) (27 Points)

05 May 2010

Can a HUF become partner and can the firm then open a bank account and alos avail bank loan?

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9 Replies

Nitin Singhal (Gaining knowledge...) (320 Points)
Replied 05 May 2010

Yes firm can open a bank account. If you are a partner, as written in your status, then your firm also must be having a bank account in its own name for day to day dealings.

The Following is the text of section 4 and 5 of Indian Partnership Act:

4. DEFINITION OF "PARTNERSHIP", "PARTNER", "FIRM" AND "FIRM-NAME".

"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".

5. PARTNERSHIP NOT CREATED BY STATUS.

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.

By looking at scetion 4 it appears that the inmtention of law is to include individuals only (as shown by coloured text) and not any other person whether incorporated or not. Because if artificial persons were to be inculded then the word Individually would not have been used.

Moreover, in section 5 it is stated that partnership arises from contract (refer to coloured text) and since HUF is not capable of entering into into contract in its own name it cannot become member of a firm.

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CA SURENDRA KUMAR RAKHECHA (Practising CA at Surat) (26263 Points)
Replied 06 May 2010

Supreme Court has established that an HUF cannot become a partner in a firm because it is a fluctuating body i.e. number of member increase and/or decrease according to birth and death of members.

It is represented by its partners and it is not having distinct legal status.

Even though it is represented by Karta; still Karta in his individual capacity is partner and there is understanding between its member and Karta that he will represent family.

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Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 06 May 2010

Agree with the analysis of Nitin Ji.

HUF cannot become member of a partnership firm due to its incapability of entering into the contracts.

Further there is no doubt in the fact that a Partnership firm can open its bank account to operate its day to day affairs.

Best Regards

1 Like

(Guest)

No it can do so only through its katra.

HUF arises only from status.

CIT v. Seth Govindram sugar Mills (1965) 57 ITR 510 (SC).

Further there is no doubt in the fact that a Partnership firm can open its bank account to operate its day to day affairs.(Source : Ankur Garg)

Regards

K.Ilayaraja.

pawan (manager) (43 Points)
Replied 06 May 2010

YES, HUF CAN BECOME PARTNER IN A FIRM. BUT AS PER SOME RBI GUIDELINES , BANKS DO NOT ACCEPT GUARANTEE OF HUF PARTNER WHILE PROVIDING LOANS / CREDIT LIMITS TO SUCH FIRMS AND REQUIRE THE FIRMS TO REMOVE HUF PARTNER FROM PARTNERSHIP BEFORE PROVIDING LOANS / CREDIT LIMITS .

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(Guest)

Everything above said is TOTALLY WRONG.

- HUF can enter into Contracts.

- Just because the number of Members, Increases/Decreases in the HUF, that doesn’t mean, HUF does not have stability (Note: In case of Companies, No. of Members also Increases/reduces).

The Answer is Yes, Yes and Yes, HUF can become the Partner in the Partnership Firm. Here is the some of the ignored case Laws on the HUF Status.

REPRESENTATIVE OF HUF IN A PARTNERSHIP FIRM:

An HUF can become a partner in a firm. The Karta or a member of the HUF can represent the HUF in a firm. A female member can also represent HUF in a partnership firm, CIT v. Banaik Industries 119 ITR 282 (Pat.)

REMUNERATION TO KARTA OR MEMBER FROM FIRM:

Where remuneration was received by a member of HUF from a firm, where he was partner on behalf of HUF for managing firms business such remuneration was his individual income, CIT v. G. V. Dhakappa 72 ITR 192 (SC); Premnath v. CIT 78 ITR 319 (SC).

However, income received by a member of HUF from a firm or company is taxable as the income of the HUF, if it is earned detriment to or with the aid of family funds, otherwise it is taxable as the separate income of the member, P.N. Krishna v. CIT 73 ITR 539 (SC).

HUF AND FIRM:

Members of HUF can constitute Partnership without effecting a partition or without disturbing the status of joint family. Ratanchand Darbarilal v. CIT 15 ITR 720 (SC).

Best Regards,

Ankur Shah

M: 94276 33901

E: ankur @ csankur.in

W: www.csankur.in

Srinivas M (Assistant Vice President) (21 Points)
Replied 01 January 2016

But pls confirm will the banks fund if karta of huf is a partner

Sathiya Moorthy (Article Assistant) (21 Points)
Replied 26 February 2016

I need an admission deed format relationg to admission of an HUF into a PArtnership firm.

Thanks in advance

gulab (proprietor) (51 Points)
Replied 19 September 2017

if i want to remove huf partner and add other partner in huf place . can huf partner sell his share to other incoming partner as deed permits addition and do pan card should be updtaed with the new partner list??

do new deed should be cretaed??