Question

Describe the provisions applicable in the absence of partnership deed on the following basis: (i) Profit - Loss distribution (ii) Remuneration (of partners) (iii) Interest on loan given by a partner (iv) Interest on drawings

Hint:

Remember the key provisions in the absence of partnership deed:

• {Profit/Loss} $\rightarrow$ Equal sharing
• {Remuneration} $\rightarrow$ No salary/commission to partners
• {Interest on Loan} $\rightarrow$ 6% p.a. (payable even in losses)
• {Interest on Capital} $\rightarrow$ No interest
• {Interest on Drawings} $\rightarrow$ No interest charged

Answer 1

In the absence of a partnership deed (Partnership Agreement), the provisions of the Indian Partnership Act, 1932 are applicable. The following provisions apply: (i) Profit - Loss distribution
As per the Indian Partnership Act, 1932, in the absence of any agreement:

• Profits and losses are to be shared equally among all partners, regardless of their capital contribution or involvement in the business.
• This applies even if partners have contributed different amounts of capital or have different roles in the firm.

(ii) Remuneration (of partners)

• No partner is entitled to any salary, commission, or other remuneration for taking part in the conduct of the business.
• Partners are only entitled to their share of profits as per the profit-sharing ratio.
• Even if a partner works extra hours or manages the entire business, they cannot claim any additional remuneration.

(iii) Interest on loan given by a partner

• If a partner advances any loan to the firm beyond their capital contribution, they are entitled to interest on such loan.
• The rate of interest is 6% per annum.
• This interest is to be paid even if the firm incurs losses.
• Note: No interest is allowed on partners' capital in the absence of a partnership deed.

(iv) Interest on drawings

• In the absence of a partnership deed, no interest is charged on drawings made by partners.
• Partners can withdraw any amount from the firm without any interest liability.
• However, the partnership deed can specify a rate of interest on drawings if partners agree.