Q.Explain the essential features of a partnership.

Each feature of partnership traces directly back to a specific element of the Section 4 definition studied earlier in this chapter.

Drawing on Section 4 of the Indian Partnership Act, 1932, the essential features of a partnership are:

1. Formed by agreement — a partnership arises only out of an agreement, oral or written, between the persons concerned; it is never created merely by status or birth, which is exactly what distinguishes it from an HUF business.
2. At least two persons — a minimum of two persons is needed to form a partnership; the Act itself does not fix an upper limit, though the Companies Act, 2013 and its rules cap the number of persons in a firm carrying on business for profit at 50.
3. Lawful business — the partners must have agreed to carry on a business that is lawful; an agreement built around an illegal activity cannot amount to a valid partnership.
4. Sharing of profits — the partners must have agreed to share the profits earned by the business; an arrangement to share only losses, or one with no profit motive at all, does not qualify.
5. Mutual agency — the business must be carried on by all the partners, or by any of them acting for all. This makes every partner simultaneously a principal, bound by what fellow partners do on the firm's behalf, and an agent, able to bind the firm by his own acts done in the ordinary course of business. Courts treat this as the decisive test of whether a genuine partnership exists.
6. Unlimited liability — every partner's liability for the firm's debts is unlimited and joint and several, meaning a creditor can recover the firm's entire debt from any one partner's personal assets, leaving that partner to seek contribution from the others.

Omitting mutual agency and reducing partnership's definition to just 'people sharing profits' — profit-sharing alone (say, between an employer and an employee paid by commission) does not make a partnership; the 'acting for all' mutual-agency element is what the courts actually look for.