Fundamentals of Partnership and Goodwill Test - 4

C is correct. Profit will be distributed in Equal ratio. When there is no partnership deed or partnership deed is prepared but it is silent on profit sharing ratio, in such a case rules of Partnership Act, 1932 will be applicable. According to which, profits or losses will be shared by the partners equally irrespective of their capitals.

Partners are entitled to interest on capital only if rate of interest is mentioned in the partnership deed. But in this case business is continued without partnership deed. As per the Partnership Act, 1932, partners are entitled to interest on capital only when there is partnership deed and rate of interest is mentioned in it.

Sharing of profits is must for a partnership business. Profits earned by a partnership firm should be divided amongst partners in the agreed profit sharing ratio. If profit sharing ratio is not mentioned in the partnership deed or partnership deed is silent on the distribution of profits, in such a case profits will be shared equally.

A person who joins a partnership business, individually called a partner. The group of partners is called Firm and the name under which all business activities going on is known as firm’s name.

Section 4 of the Indian Partnership Act, 1932 defines Partnership as the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.

The business of partnership can be carried on by all the partners or any one of them acting for all. Thus, every partner is principal as well as agent of other partners and of the firm. Thus,

(i) Each partner is liable for acts performed by other partners,
(ii) Each partner can bind other partners and the firm by his acts done in the ordinary course of business.

There are two main views. One is from the accounting point of view, according to that, status of partnership is different i.e.. it has a separate business entity. From the point of view of law, it has no separate business entity. Partners and firm are one.

Mostly, the liability of the partners of a firm is unlimited. Their personal properties can be disposed off to pay the debts of the firm if required. The creditors can claim their dues from any one of the partner or from all of them, meaning partners are liable:

• Individually

• Collectively

The beginning of partnership is always because of an agreement. There should be an agreement among the partners to start a partnership business. Agreement can be written or oral that does not matter.

When there is no Partnership deed or Partnership deed is prepared but it is silent on profit sharing ratio, in such a case rules of Partnership Act, 1932 will be applicable. According to which, profits or losses will be shared by the partners equally irrespective of their capitals.

Interest paid on debentures is a charge against the profit. Partnership Deed is mainly concerned with the appropriations and some charge. Main contents of partnership deed are interest on capital, interest on drawings, name of the firm, partners, their names and address etc.

A person who joins a partnership business, individually called a partner. The group of partners is called Firm and the name under which all business activities going on is known as firm’s name.

Members of the firm are called partners. Proprietor word is mainly used in case of sole proprietorship. But in case of partnership persons join hands together to run a business are called partners. They contribute capitals individually and responsible for all profits or losses.

Fixed capitals of the partners will remain fixed but there are two situations when fixed capitals of the partners may change:

1. When additional capital is introduced by the partners

2. When capital is withdrawn permanently under an agreement.

When rate of interest on capital is not mentioned in partnership deed, partners cannot claim for interest on capital. Interest on capital will be allowed to the partners only if rate of interest is mentioned in the partnership deed.

Partnership deed plays important role in regulating the duties and responsibilities of each partner. A written partnership deed is useful to resolve disputes and misunderstanding among partners because everything is in written form

Registration of a partnership firm is optional. It means there is no need for the registration of a partnership firm. As per the Partnership Act, 1932, it is an option for a partnership firm to get registered or not. But it is always advisable to get registered.

In India, Partnership Act, 1932 is followed by all the partnership firms. Specially in the absence of partnership deed, all provisions of Partnership Act, 1932 will be applicable.

Interest on bank loan will be fixed by the bank and not by the partners or partnership deed. A partnership deed can show only those contents which are concerned with partners or firm. Interest on bank loan is a charge against the profit. It means it will be paid in all conditions whether there is profit or loss in the business.

The partners has taken a decision to provide employment to the women of economically backward section of the society. By this decision, partners are communicating the valued to the society i.e. financial security to the weaker section of society and social responsibility.