The partnership is a result of a contract or an agreement that is entered into between the partners. It does not arise from birth, status or inheritance or succession.
2. Nature of agreement:
The contract or agreement between the persons may be oral or written. But usually, the contract is in writing.
3. Competence to enter into contract:
The persons who form a partnership must be competent or must have the capacity to enter into contract. Persons who do not have the capacity to enter into contract such as minors, insolvents, lunatics (persons with unsound mind) cannot become partners.
4. Number of partners:
To form a partnership at least two persons are required. The maximum number of partners is limited to 20, in case of general type of business and 10, in case of banking business.
5. Presence of business:
The agreement between partners must be to carry on some business which includes all lawful trade, occupation or profession. Hence, the presence of a business is a must and it does not cover any club or charitable association.
6. Sharing of profits:
The agreement between the partners must be 4 for making profits and sharing the profits among themselves.
The partners share the profits in the agreed proportions.
7. Principal-Agent relationship:
Each partner acts in two capacities, i.e. he is both a principal and agent. As an agent, he can bind the other partners by his acts and as a principal; he is bound by the acts of other partners.
The partnership business can be carried on by all the partners or by any one or more acting for all.
9. Unlimited liability:
The liability of partners is unlimited. If the firm fails to satisfy its debt, each partner is liable to repay out of his personal assets.
10. Non-transfer ability of interest:
A partner cannot, without the consent of other partners, transfer his interest in the firm to an outsider.
11. Joint ownership:
Each partner is a joint owner of the property of the firm and hence, in the eyes of law the firm and the partners are considered to be one and the same. Partnership has no separate existence apart from the partners composing it.
12. Team spirit:
The essence of partnership is based on the spirit of co-operation. Hence there should be mutual trust and mutual co-operation among partners.