Multiple choice

True test of partnership is

  1. sharing of profits

  2. sharing of profits and losses

  3. mutual agency

  4. existence of an agreement to share profits of the business
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The true test of partnership is mutual agency - the legal relationship where each partner is both an agent and principal of the other partners and the firm. While profit-sharing is common evidence of partnership, it is not determinative; many arrangements share profits without creating partnerships. Mutual agency means partners can bind each other and the firm in business dealings.

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