How is a partnership formed?

Formation of Partnership — A partnership can be formed only through an agreement between two or more persons. This agreement may be oral or in writing.

The steps in the formation of partnership are:

1. Agreement — Two or more persons (minimum 2, maximum 50) come together and agree to carry on a lawful business together.

2. Written Agreement Preferred — Although the agreement may be oral or written, a written agreement is preferable because it serves as a record for future and helps to resolve disputes.

3. Partnership Deed — The written agreement of partnership is called the Partnership Deed. It contains all the terms and conditions on which a partnership has been formed.

4. Signing the Deed — The partnership deed is signed by all the partners.

5. Mutual Consent for Alterations — The Partnership Deed is not a public document. It can be altered at any time with the mutual consent of all the partners. No legal formalities are involved in its alteration.

6. Registration (Optional) — Registration of the firm with the Registrar of Firms is not compulsory but is highly desirable. The firm may get itself registered at the time of formation or afterwards.