Chapter 1 : Fundamental of Partnership
Topics : Definition, Key Features, Partnership deed and Legal Provisions in the Absence of partnership deed (as per the Indian Partnership Act, 1932) Section 4 of the Indian Partnership Act, 1932 defines the term “partnership” and lays the foundation for the concept of partnership in India. It states: Definition of Partnership:“Partnership” is the relationship between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Key Elements of Section 4: The conditions of partnership as per the Indian Partnership Act, 1932, are fundamental requirements that must be fulfilled for a partnership to exist. These conditions ensure the legal validity of a partnership. Below are the key conditions: 1. Agreement Between Partners 2. Existence of a Lawful Business 3. Sharing of Profits 4. Mutual Agency 5. Number of Partners 6. Business Conducted in Common 7. Voluntary Relationship 8. Registration (Optional but Beneficial) A partnership deed is a written legal document that outlines the terms and conditions agreed upon by all partners in a partnership firm. It serves as the foundation of the partnership, detailing the rights, responsibilities, and obligations of each partner. While it is not mandatory to have a partnership deed (as partnerships can be oral), a written deed is highly recommended to avoid disputes and misunderstandings. Key Features of a Partnership Deed Contents of a Partnership Deed A well-drafted partnership deed typically includes the following details: Importance of a Partnership Deed According to partnership Act 1932 (the NCERT Class 12 Business Studies textbook) If there is no written partnership deed, the following rules apply based on the Indian Partnership Act, 1932: 1. Equal Sharing of Profits and Losses 2. No Interest on Capital 3. No Salary or Remuneration 4. Interest on Loans by Partners If a partner gives a loan to the firm, they will receive 6% interest per year on the loan amount. However, if the firm gives a loan to a partner, the partner does not have to pay any interest on the loan. A partner enjoys benefits on both sides. 5. Equal Rights in Business Decisions 6. Admission of a New Partner Case Study on Issues in the Absence of a Partnership Deed Amar, Akbar, and Anthony are partners in a firm. However, they do not have a Partnership Deed. The following issues have arisen among the partners: Resolution of Issues:In the absence of a Partnership Deed, the provisions of the Indian Partnership Act, 1932, shall be applicable: By applying the provisions of the Indian Partnership Act, 1932, the above issues can be resolved. Case Study on Partnership Dispute Question Amar and Akbar are partners in a firm since 1st April 2022. No partnership agreement has been executed between them. Amar contributed ₹4,00,000 and Akbar contributed ₹1,00,000 as their capitals. Additionally, Amar provided a loan of ₹1,00,000 to the firm on 1st October 2022. Due to a prolonged illness, Amar could not participate in the business from 1st August 2022 to 30th September 2022. The profit for the year ended 31st March 2023 was ₹1,80,000. The following disputes have arisen between Amar and Akbar: Solution In the absence of a partnership agreement, the provisions of the Indian Partnership Act, 1932 will apply to resolve the disputes: Profit and Loss Appropriation Account working note for the year ended 31st 2023 Working Notes By applying the provisions of the Indian Partnership Act, 1932, the disputes are resolved, and the profit is distributed equitably between Amar and Akbar. Based on these provisions, the claims are settled as follows:
