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Scholars of American political parties are increasingly turning their attention to intra-party factions, sometimes describing them in ways that are parallel to the parties in multi-party systems. But the place of aggregation matters. Intra-party factions within the U.S. two-party system operate differently from parties in multi-party systems. The reasons for political divisions are not always the same, and even when they are, the incentives for organizing around them are very different. In this paper, we develop a theory of factions based on multiple sources of internal division — over policy, priorities and personal leadership. That theory is nested inside existing theories of party formation and inter-party conflict, putting factions into their proper place in our two-party system.