Cognizing factors and reasons of emergence of Islamic theological Sects are necessary to be understood first before a meaningful involvement in the Intrafaith dialogue. Pinpointing of these factors will no doubt help a Muslim Scholar to play vital role in discouraging them and in stoppage of formation of new sects on the same lines. This article has therefore discussed various reasons of the emergence of Theological Schism in Islam and has argued that a single particular reason cannnot be determined as a fundamental cause, rather several internal and external reasons have contributed in the establishment of new sects out of which internal factors have left more significant impact than external factors. The Analytical study of the historical events and circumstances in early Islam suggests the following factors are major reasons for the formation of Sects: imperfection in inference from Qur’an & Sunnah, cult of personalities and reverence of ideologies, creating new beliefs in din, following of whims & self-desires, love of fame and preside, political trends, national and tribal bigotry, corrupt & irregular interpretations. Some external factors also played an imperative role in schism in early Islam. Such as Jews, Christians, and other religious communities were directly involved in dividing Muslim community by intruding their beliefs in them, which resulted in formation of new sects in Islam.