1. Two or more partners : There have got to be at least two partnership to form a partnership firm. The maximum number of persons is not specified by the Partnership Act, but Section 11 of the Companies Act 1956, restrict the number of partners to 10 for a partnership firm carrying banking business and 20 for other business.
2. Agreement : Partners comes into existence by an agreement and not by the operation of law. Such an agreement can be either oral or written. Written agreement must be preferred.
3. Sharing of Profits : Profit-sharing is the foundation of partnership. If some persons joins hands to carry some charitable activity, it will not be called as partnership. Thus, profit sharing is must. But it is not necessary that all partners should share the profit in equal ratio. The profit sharing ratio is the outcome of an agreement. It should be noted that sharing of losses is not essential. One or more partners can be exempted from sharing in losses.
4. Business carried one by all or any of them acting for all : All the partners have right to take active part in the management of business or they can thrust this duty to anyone of them. It shows that each partner is an agent as well as a partner of the firm. As an agent, he can bind the other partners by his acts and as a principal, he himself can bound by the acts of other partners.
5. Business : Partnership can be formed for the purpose of carrying on some business with the intention of earning profits and such business must be legal.
6. Application of Partnership Act : Generally, in partnership, partners determine their duties and rights by mutual agreement, but if no such agreement exists among them, in that case the various provision of Indian Partnership Act, 1932 are applicable.
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