Provisions applicable in the absence of partnership Deed

What is Partnership

Partnership is an association between two or more persons who agree to do business and share profits and losses

What is Partnership Deed

It is pertinent to note that the partnership can be formed either by an oral or a written agreement among the partners. Partnership Deed is a written document which contains the terms of partnership as agreed between the partners. If partnership deed exists and also contains the relevant clause then terms contained in such clause will apply. However If there is no oral agreement or no partnership deed or partnership deed is there but relevant clause is absent then the following provisions as per Indian Partnership Act Will apply

What happens in the absence of partnership Deed

If there is no oral agreement or no partnership deed or partnership deed is there but relevant clause is absent then the following provisions will be applied

Sharing of Profits and LossesEqually
Interest on CapitalNot Paid
Interest on DrawingsNot Charged
Interest on (advance/loan by partner to firm)Interest on loan @ 6% and payable even if loss, as it is charge against profits
Remuneration to partners (Salary, Commission, etc.)Not Paid
Interest on (Loan to partner by firm)Not Charged
Admission of a partnerCannot be admitted unless all partners agree to it
Provisions in the absence of partnership deed
%% Define nodes and connections graph LR; %%title[Provisions in Absence of Partnership Deed] %%title --> A["Provisions in Absence of Partnership Deed"] style B fill:#ffcc99,stroke:#f66,stroke-width:2px; style C fill:#ffcc99,stroke:#f66,stroke-width:2px; style D fill:#99ff99,stroke:#339933,stroke-width:2px; style E fill:#99ff99,stroke:#339933,stroke-width:2px; style F fill:#cc99ff,stroke:#663399,stroke-width:2px; style G fill:#cc99ff,stroke:#663399,stroke-width:2px; style H fill:#99ccff,stroke:#336699,stroke-width:2px; style I fill:#99ccff,stroke:#336699,stroke-width:2px; style J fill:#ffff99,stroke:#999933,stroke-width:2px; style K fill:#ffff99,stroke:#999933,stroke-width:2px; style L fill:#ff9999,stroke:#993333,stroke-width:2px; style M fill:#ff9999,stroke:#993333,stroke-width:2px; style N fill:#99ffff,stroke:#339999,stroke-width:2px; style O fill:#99ffff,stroke:#339999,stroke-width:2px; A["Provisions in Absence of Partnership Deed"] B["Interest on loan by partner"] C["6% Per Annum"] D["Profit Sharing Ratio"] E["Equal"] F["Interest on capital"] G["Nil"] H["Interest on drawings"] I["Nil"] J["Salary to partner"] K["Nil"] L["Interest on loan by firm to partner"] M["Nil"] N["Admission of new partner"] O["Only with consent of all partners"] A --> B B --> C A --> D D --> E A --> F F --> G A --> H H --> I A --> J J --> K A --> L L --> M A --> N N --> O %% Adjusting node sizes style A max-width:150px, max-height:50px; style B max-width:150px, max-height:50px; style C max-width:150px, max-height:50px; style D max-width:150px, max-height:50px; style E max-width:150px, max-height:50px; style F max-width:150px, max-height:50px; style G max-width:150px, max-height:50px; style H max-width:150px, max-height:50px; style I max-width:150px, max-height:50px; style J max-width:150px, max-height:50px; style K max-width:150px, max-height:50px; style L max-width:150px, max-height:50px; style M max-width:150px, max-height:50px; style N max-width:150px, max-height:50px; style O max-width:150px, max-height:50px;

Examples - Assume no partnership Deed exists in the following cases

Question - Amit withdrew Rs 10,00 from the firm for his personal use to buy a mobile phone . Other partners demand that interest on drawings be charged from him @ 10% p.a.

Answer - No Interest on drawings will be charged

Question - Sumit worked day and night in the partnership firm. While other partners worked only till office time. Sumit demands extra remuneration for his extra efforts.

Answer - No Extra remuneration will be paid to Sumit

Question - A, B and C were partner. A invested double the amount of capital as invested by the remaining partners. He demand interest on capital

Answer - No Interest on capital will be provided

Question - X, Y and Z are partners. X wants to admit his wife as a partner into the firm. Y is agreed to the proposal but Z disagrees

Answer - X's wife cannot be admitted unless all the partners agree to her admission

Question - Kareena is a partner in a firm. She invested Rs 1 Lakh as her capital into the firm. Over and above the capital she also gave Rs 2 Lakh as loan to the firm. She demands interest @ 6% on the amount of loan. Other partners disagrees

Answer - Kareen will get interest on loan of Rs 2 Lakh @ 6% per annum

Question - Ms Alia is a partner in a firm. She wanted to buy Mercedes Benz car but she lacked funds by Rs 5 Lakhs. She took loan from the firm for Rs 5 Lakhs. Does she needs to pay any interest to the firm on the loan?

Answer - No interest can be charged on the loan given by firm to partner

Go to Accountancy Articles Index

Leave a Comment

Your email address will not be published. Required fields are marked *