Question

difference between oral partnership deed and written partnership deed

Answer 1

Dear Student,
Partners are free to define the terms of their relationships, even if they go contrary to the Act in certain cases. They can either decide
on such terms with an oral agreement or a written one. The Partnership Act does not require that the agreement must be in writing. But when the agreement is in written form, it is called ‘Partnership Deed’. Partnership deed should be duly signed by the partners, stamped & registered.Partnership deeds defines details like the nature of the firm, duties, and rights of partners, their liabilities and the ratio in which they will divide profits or losses of the firm.

In case partners do not adopt a partnership deed, the following rules will apply:

1. The partners will share profits and losses equally.
2. Partners will not get a salary.
3. Interest on capital will not be payable.
4. Drawings will not be chargeable with interest.
5. Partners will get 6% p.a. interest on loans to the firm if they mutually agree.
6. A new Partner can be admitted only with the consent of all the existing partners.
7. Each partner has a right to participate in the proceedings of the business.
8. Each partner has the right to inspect the accounts of the firm and can have a copy of the same.
9. Each partner is liable jointly with all the other partners and also severally to the third party for all the acts of the firm done while he is a partner. Not only that the liability of a partner for acts of the firm is also unlimited. This implies that his private assets can also be used for paying off the firm’s debts.

The main reasons for a deed are:

• When a deed doesn’t exist it is difficult to know what the agreements are, particularly in the situation of dissolution or entry or exit of a partner and chances of conflicts are more in the absence of partnership deed.
• The limitation of the Partnership Act
• It provides partners with the equivalent of, and the advantages of, an employment contract
• Provides the basis of entry for future partners

Regards