Meaning of Partnership Deed
Partnership deed is a written agreement among the partners containing the terms and conditions of partnership. It must contain the following terms from accounting point of view; otherwise, the provisions of Indian Partnership Act 1932 (https://www.mca.gov.in/Ministry/actsbills/pdf/Partnership_Act_1932.pdf) become applicable. These are:
Important terms from Accounting point of view
Points Deed No Deed
- Profit sharing ratio Mentioned Equal
- Salary/commission to a partner Mentioned Not allowed
- Interest on capital Mentioned Not allowed
- Interest on drawings Mentioned Not charged
- Interest on partner’s loan Mentioned At least 6% per annum
Example:
X, Y and Z are partners without any partnership agreement with initial capitals of ₹300,000, ₹400,000 and ₹500,000, respectively. The following differences have arisen among them:
(1) X claims profit to be shared on the basis of capital contributions but Y objects.
(2) X claims Interest on capital at 10% p.a.
(3) X spends extra time to the business for which he wants a salary of ₹1,000 p.m.
(4) Y wants to admit his nephew P to this partnership but X does not agree.
(5) Z has given a personal loan of ₹2,000 to the firm for which he wants an interest. Y does not agree.
You resolve the issues and give your comments.
Solution:
Since there is no agreement, provisions of Indian Partnership Act 1932 will apply:
(1) X is wrong. Profit must be shared equally among all the partners.
(2) X is wrong. No interest on capital is to be allowed in this case.
(3) X, again is wrong. No salary is to be allowed to X in this case.
(4) Here, Y can admit his nephew only with the consent of X and Z both.
(5) Y cannot object to the payment of interest on loan, Z must be given an interest at 6% p.a.
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