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Partnership Firm

Provision of Partnership Act in the Absence of Partnership Deed

In the absence of a partnership deed, the accounting will be performed in accordance with the Indian Partnership Act of 1932. The following accounting standards apply in the absence of a partnership deed including a partnership agreement that covers all aspects of the relationship between the partners.

The partnership deed is signed for of partnership business that are controlled under the Indian Partnership Act of 1932, which governs partnership business in India. Several sections of the legislation detail a partner’s rights, obligations, responsibilities, and powers. However, the partners are not obligated to adhere to these terms. 

As long as the partners agree, the agreement can be changed to include any additional terms. There are no restrictions on how partners can define their contractual relationships under the Act. It’s up to the parties to agree on these terms verbally or in writing. 

In the most basic terms, partnership deeds are contracts between company partners. The partnership agreement outlines the terms of the partnership, the responsibilities and rights of each partner, their financial responsibilities, and how profits and losses would be shared.

What Is Partnership Act Provision in the Absence of Partnership Deed?

In absence of partnership deed, the provisions of the Partnership Act shall apply. In addition, the following accounting guidelines are applicable if there is an absence of partnership agreement/ deed: A partnership deed will cover everything to know about the partners’ interactions with one another. However, in the absence of an agreement, the accounting must be carried out following the Indian Partnership Act of 1932:, outlined below.

Term 1: Interest On Capital

Partners are not eligible to get interest on the cash they contribute to a business. Interest is only paid if the partnership agreement permits it to be paid out of that profit when there is a profit. Interest is not paid in the event of a loss. In the event of a loss, interest will not be paid out.

partnership firm registration

Term 2: Interest On Drawings

No interest will be charged to the partners on the drawing they make. 

Term 3: Commissions to Allies (Partner)

A partner is not entitled to receive a salary or commission unless specifically provided in the Partnership Agreement. 

Term 4: Terms of Interest per a loan 

Each of the firm’s partners is eligible to receive 6% interest on any money they lend to the company in the form of a loan.

Term 5: Equal Sharing Of Profit

No matter how much money an individual contributes to the business as a partner, they all get an equal portion of the company’s earnings.

Characteristics of a Partnership Deed

Partnership Agreement

The formation of a partnership is contingent upon the parties involved reaching a mutually acceptable agreement. Oral or written agreements can be created between partners. However, to minimise potential disagreements in the future, contracts must be written down.

The Total Number of Members

The law stipulates that there must be a minimum of two partners in the partnership firm, with the number of members not exceeding fifty. In addition, there cannot be more than ten partners in a financial company.

The Signing Up Process

Participating businesses are exempt from the registration requirement. Instead, the company’s name is included in the register by the registrar based on an application submitted by the firm.

The Partnership Itself and Its Relationships

Every partner can act independently or jointly on behalf of all partners in the firm while conducting business on behalf of the company. Therefore, every partner in the company is both an agent and a principal in the industry.

Liability That Is Not Limited

If the business is structured as an LLP, the partners will bear no legal responsibility for anything. In other circumstances, the Partners’ assets may be utilised to satisfy the obligations incurred by third parties.


Every partner has an equal say in the management of the company. In addition, they are equally responsible for the company’s actions, both jointly and severally.

The Proportion of Shared Profits

In the absence of a specific agreement to the contrary, both the profits and the losses are split evenly.

Advantages Of Partnering over a Company 

There are some benefits to forming a partnership rather than a company. A partnership can be established by reaching an agreement between multiple people. Before a company can even be found, there are a lot of requirements that have to be satisfied first.

  • When a partnership business is dissolved, all of the partners in that business are no longer participants in the industry. This can happen for several reasons, such as when one person passes away or another partner becomes bankrupt. In contrast to individuals, companies are not influenced by the coming and departure of their members in the same way
  • It is not difficult to dissolve a partnership because all that is required is signing an agreement; however, this is not the case for a business because dissolving a corporation requires adhering to a specific set of processes
  • In a partnership, both the individual members of the collaboration and the group are referred to as partners. A partnership business does not have its own distinct identity under the law. However, a firm has its legal personality. On the other hand, a firm possesses a separate legal personality
  • It is simple to dissolve a partnership by signing an agreement, but this is not the case for a corporation, which must complete a set of steps to dissolve
  • Because partners keep all of the money made by their partnership businesses, there is a strong financial incentive for partnership businesses to be profitable
  • The level of responsibility that comes with being a member of a corporation is restricted, whereas the level of duty that comes with being a partner is unrestricted
  • The management of the business should be left up to the partners.

Final Word

The following provisions will apply without a partnership agreement under the Indian Provision Partnership Act, 1932. No salary or remuneration can be paid to any partner. All profits and losses should be shared equally between partners; no interest shall be paid on capital, and no interest shall be charged on drawings made by partners; interest is allowed at 6% per year.

Furthermore, in a partnership agreement, each partner has the right to participate in the business activities and have full access to the company’s documents. However, the partners are not entitled to any compensation, including wages or interest on capital, for any work they perform. To know more about the provision of the partnership act in the absence of  partnership deed, get in touch with the experts at Vakilsearch.

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