A partnership firm is a type of business that requires at least two members called partners and when the partners enter into an agreement to establish a partnership firm it is called a partnership deed. The partnership deed mentions all the details related to the business such as who will be the partners, what will be the nature of the business, what will be the profit and loss sharing ratio, whether the partners will get interest on the investment or not, etc.
A partnership firm can be formed without deed but having a deed is very beneficial in the future. If partners form a partnership firm without a deed or all important things are not mentioned in the deed then in such case general rule applies. When a general rule applies in business then partners have to act accordingly. Note: If partners agree among themselves then this rule does not apply.
Table of Contents
What rules apply in the absence of a partnership deed?
In the absence of a partnership deed the following rules apply:
| Sharing Ratio | Equal (1:1) |
| Remuneration | No |
| Interest on Capital | No |
| Interest on Drawing | No |
| Interest on Loan | 6% per annum |
1. Sharing Ratio:
In the absence of a partnership deed, the partners share the profits and losses of the business equally, even if a partner has invested more or less. If a partnership deed is available, the partners share the profits and losses accordingly.
2. Remuneration:
If the partnership deed is absent then the partners will not be entitled to receive remuneration because to receive remuneration, there must be a mention about remuneration in the partnership deed. If there is a partnership deed but there is no mention about remuneration, then also the partners will not be entitled to remuneration
3. Interest on Capital:
In the absence of a partnership deed, no partner is entitled to get interest on capital. Interest on capital is provided only if this clause is available in the partnership deed.
4. Interest on Drawing:
In the absence of a partnership deed, partners are not liable to pay interest on drawings. If this clause is mentioned in the partnership deed, then the partners are liable to pay interest on drawings.
5. Interest on Loan:
In the absence of a partnership deed, the partners are entitled to receive interest at the rate of 6% per annum on the loan given to the firm. If a partnership deed is available, they get interest on the loan accordingly.
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QNA/FAQ
Q1. Are profits and losses shared equally among the partners in the absence of a partnership deed?
Ans: Yes, in the absence of a partnership deed the profits and losses are shared equally (1:1) among the partners.
Q2. Are partners entitled to interest on capital in the absence of partnership deed?
Ans: No, in the absence of a partnership deed, a partner is not entitled to get interest on capital, as interest on capital is paid only if this clause is mentioned in the partnership deed.
Q3. Are the partners entitled to receive remuneration in the absence of a partnership deed?
Ans: No, in the absence of a partnership deed, the partner is not entitled to get remuneration as remuneration is paid only if this clause is mentioned in the partnership deed.
Q4. Are the partners entitled to receive interest on loan in the absence of a partnership deed?
Ans: Yes, in the absence of a partnership deed, the partners are entitled to get interest on the loan at the rate of 6% per annum irrespective of whether the partnership deed is available or not.
Q5. Are the partners liable to pay interest on drawing in the absence of a partnership deed?
Ans: No, in the absence of a partnership deed, a partner is not liable to pay interest on drawings, as partners are liable to pay interest on drawings only if this clause is mentioned in the partnership deed.
Q6. What rules apply in the absence of a partnership deed?
Ans: In the absence of a partnership deed the following rules apply:
1. Partners share profits and losses equally.
2. Partners are not entitled to receive remuneration from the business.
3. Partners are not entitled to receive interest on capital.
4. Partners are not liable to pay interest on withdrawals.
5. Partners are entitled to get interest at 6% per annum on the loan.
