A partnership business must satisfy all the following essential elements. They must exist together. Absence of any one of them may cut the roots of partnership.

1. There must bean association of two or more persons. A person cannot become a partner with himself. Rcduclion in the number of partners to one shall bring about compulsory dissolution of the firm. The term ‘person’ does not include ‘firm’ (since it does not have a sepae legal existence) and as such only the partners of the firms can enter into partnership provided the combined strength of partners does not exceed the statutory limit. The, number of members in a partnership finn shouhl not exceed 10 if it carrying on a banking business, or 20 if it is engaged in any other business. An association or a partnership finn having members more than this statutory limit must be registered as a joint stock company, under the Companies Act or formed in pursuance of some other Indian law, otherwise it shall become an illegal association.’

2. There must be an agreement entered into by all persons concerned. The relation of partnership arises from contract and not from status or by operation of law. Partners must enter into an agreement voluntarily to form a partnership. The agreement may be express or implied. It may be for a fixed period or for a particular venture or at will, i.e., for an uncertain duration. Co-owners of a property or heirs of a sole proprietor who has died will not ipso facto become prtners in the business, unless there is n agreement between them to carry on business as partners.

Partners must enter into the contract with a motive to earn and distribute amongst themselves profits of the business. Agreement to share losses is not essential. Agreement to share profits also implies an agreement to share losses.

3. Business must be carried on by all or any of the persons concerned acting for all. Partners in a firms act in both the capacities of an agent as well as principal. Active partners act as agents and conduct the business for all the partners under an implied authority to do sq by the latter. Partners are mutual agents for each other and principals for themselves. A partner has an authority to bind his co-partners by his acts done io the ordinary course of the business of the firm. Partner’s liability is not limited to his share in the business but itextends to his personal assets too.