Features of Partnership

From the Section 4 definition, the essential features of a partnership can be drawn out:

1. Formed by agreement — a partnership comes into existence only through an agreement (oral or written) between the persons concerned; it is never created merely by status or birth, unlike an HUF business.
2. At least two persons — a partnership needs a minimum of two persons to be formed; one person alone cannot constitute a partnership. (While the Indian Partnership Act, 1932 itself does not fix an upper limit, the Companies Act, 2013 and the rules made under it cap the number of persons in a firm carrying on a business for profit at 50, beyond which the firm must be registered as a company.)
3. Lawful business — the partners must have agreed to carry on a business that is lawful; an agreement to carry on an illegal activity cannot be a valid partnership.
4. Sharing of profits — the partners must have agreed to share the profits of the business; an agreement to share only losses, or a purely charitable/social agreement with no profit motive, is not a partnership.
5. Mutual agency — this is the real test of partnership: the business must be carried on by all the partners, or by any of them acting for all. Every partner is therefore both a principal (bound by what other partners do on the firm's behalf) and an agent (able to bind the firm and the other partners by his own acts done in the ordinary course of business). …