Partnership Deed: Meaning, content, Importance
Are you looking for the complete detail of partnership deed as given in the Accounting for partnership firms – Fundamentals chapter of Class 12 Accountancy CBSE Board.
I have summed up all the detail of Partnership deed ranging from the meaning, content and importance of it.
What is the Partnership Deed
Partnership is the result of agreement among two or more persons who have agreed to share the profits of a business. Its obvious they all have agreed on some terms and conditions.
However such terms and conditions can be in oral forms. But it is assumed to be good if, all terms and conditions agreed among partners are in written format.
Such written format containing all agreed terms and conditions with necessary business information is termed as Partnership Deed.
Define Partnership Deed
“A written document which contains the terms of agreement of partnership is called Partnership Deed.”
What is the need for Partnership Deed?
In order to avoid all misunderstandings and disputes among the partners in future, It is always the best course to have a written agreement duly signed and registered under the Act.
In case of any dispute among the partners in future, this partnership deed can be furnished as evidence in court.
Other Name of Partnership Deed
It is also known as ‘Articles of Partnership’.
Content of the Partnership Deed
Following is the content of a partnership Dee. This document contain mainly all agreed terms and conditions and business information in a written document duly signed by all partners and registered.
- Description of the Partners:- Name, description and addresses of the partners.
- Description of the Firm:- Name and address of the firm.
- Principal Place of Business:- Address of the Principal place of Business.
- Nature of Business:- Nature of business that the firm shall carry on.
- Commencement of Partnership:- Date of commencement of partnership.
- Capital Contribution:- The amount of capital to be contributed by each partner, whether the Capital Accounts shall be fixed or fluctuating.
- Interest on Capital:- Rate of interest, if allowed, on capital.
- Interest on Drawings:– Rate of interest, if to be charged, on drawings.
- Profit-sharing Ratio:- Ratio in which profits or losses are to be shared by the partners.
- Interest on Loan:- Rate of interest on loan by a partner to the firm.
- remuneration to partners:- Amount of salary, commission, etc., if agreed, to be paid.
- Valuation of Goodwill:- Method by which goodwill of the firm will be valued at the time of admission or retirement of a partner or at the time of death of a partner.
- Valuation of Assets:- The manner in which assets of the firm shall be valued in the case of its reconstitution.
- Settlement of Account:- The manner in which accounts of partners shall be settled in case of his retirement or death or at the time of dissolution fo the firm.
- Accounting period:- The date on which accounts shall be closed every year. Normally accounts are closed on 31st March every year because every entity must submit the return of income on 31st March every year.
- Rights and Duties of Partners:- The rights and duties of partners are defined.
- Duration of Partnership:- The period of partnership, i.e., whether it is for a specified period or for a venture or at will.
- Bank Account Operation:- How shall the Bank Account be operated? Whether it shall be operated by any of the partners or jointly.
- Death of a Partner:- Whether the firm will continue or dissolve.
- Settlement of Disputes:- Disputes, if any, among the partners – How they shall be settled.
Importance of Partnership Deed
However, it is not essential to have a written agreement among partners. But a written agreement called partnership Deed is a legal document and can be used to settled disputes if arise in future among partners.
following are the importance of Partnership Deed.
- It governs, the rights, duties and liabilities of each partner.
- Disputes arising, if any, among the partners are resolved on the basis of partnership deed. As it is a written legal document signed by all partners and registered in the eye of law.
Is it essential to have a partnership Deed?
No, it is not essential to have a written partnership Deed. A oral agreement is enough among partners to form a partnership firm. But it is advisable to have a written agreement to avoid future disputes among partners.
As future disputes if arise, can be resolved on the basis of Partnership Deed.
Practice Questions
What is the primary purpose of forming a partnership?
(a) To share losses equally
(b) To share profits of a business
(c) To avoid legal documentation
(d) To eliminate business competition
Ans:- (b)
Terms and conditions of a partnership can be in which of the following forms?
(a) Oral
(b) Written
(c) Both oral and written
(d) Digital only
Ans:- (c)
What is the document called that contains all agreed terms and conditions between partners?
(a) Partnership Agreement
(b) Partnership Deed
(c) Business Charter
(d) Memorandum of Understanding
Ans:- (b)
Why is a written partnership agreement preferred over an oral agreement?
(a) It eliminates the need for negotiations
(b) It ensures clarity and avoids disputes
(c) It increases legal obligations unnecessarily
(d) It helps partners avoid profits
Ans:- (b)
Which of the following is considered good practice in partnership agreements?
(a) Keeping all terms oral
(b) Writing down all agreed terms and conditions
(c) Avoiding any formal agreement
(d) Agreeing to share losses only
Ans:- (b)
Why is it recommended to have a written partnership agreement that is signed and registered?
(a) To reduce the partners’ legal obligations
(b) To resolve misunderstandings and avoid disputes in the future
(c) To eliminate the need for business documentation
(d) To increase the credibility of partners in taxation matters
Ans:- (b)
What is the legal significance of a registered partnership deed in case of a dispute?
(a) It ensures automatic dissolution of the partnership.
(b) It serves as evidence in court for resolving conflicts.
(c) It guarantees profits to all partners equally.
(d) It nullifies any verbal agreements among partners.
Ans:- (b)
Assertion (A): A written partnership agreement that is signed and registered is essential to avoid misunderstandings and disputes among partners.
Reason (R): A registered partnership deed can be furnished as evidence in court in case of any dispute among the partners.
Options:
(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
(c) Assertion (A) is true, but Reason (R) is false.
(d) Assertion (A) is false, but Reason (R) is true.
Ans:- (a)
Assertion (A): A written partnership agreement ensures clarity in the terms and conditions agreed upon by the partners.
Reason (R): A partnership deed, if not registered, cannot be used in court under any circumstances.
Options:
(a) Both Assertion (A) and Reason (R) are true.
(b) Both Assertion (A) and Reason (R) are false.
(c) Assertion (A) is true, but Reason (R) is false.
(d) Assertion (A) is false, but Reason (R) is true.
Ans:- (c)
What is another name for a Partnership Deed?
(a) Memorandum of Partnership
(b) Articles of Partnership
(c) Partnership Agreement
(d) Partnership Charter
Ans:- (b)
What does the Partnership Deed primarily contain?
(a) Oral agreements between partners
(b) Agreed terms, conditions, and business information in written form
(c) Future goals and objectives of the firm
(d) Legal verdicts regarding partnership disputes
Ans:- (b)
What information about partners is included in the Partnership Deed?
(a) Their income and educational qualifications
(b) Their name, description, and address
(c) Their opinions on profit-sharing ratio
(d) Their bank account details
Ans:- (b)
How is the capital contribution of partners specified in the Partnership Deed?
(a) It is kept confidential among the partners
(b) It specifies whether Capital Accounts are fixed or fluctuating
(c) It is calculated after settling the firm’s liabilities
(d) It is divided equally regardless of the agreement
Ans:- (b)
Why is the accounting period mentioned in the Partnership Deed usually set to end on 31st March every year?
(a) To align with the partners’ preferences
(b) To comply with the income tax submission deadline
(c) To simplify annual asset valuation
(d) To avoid conflicts among partners
Ans:- (b)
What is stated in the Partnership Deed regarding the death of a partner?
(a) Whether the firm will continue or dissolve
(b) How goodwill of the deceased partner will be distributed
(c) The immediate reconstitution of the firm
(d) How to reduce the deceased partner’s capital contribution
Ans:- (a)
What is specified in the Partnership Deed regarding the principal place of business?
(a) The business hours of operation
(b) The address of the principal place of business
(c) The type of goods to be traded
(d) The partners’ residence addresses
Ans:- (b)
How is the profit-sharing ratio defined in the Partnership Deed?
(a) Based on the firm’s turnover
(b) Equally divided among all partners
(c) As agreed upon by the partners
(d) Fixed by the government
Ans:- (c)
What does the Partnership Deed state about interest on capital?
(a) Capital cannot earn interest.
(b) The rate of interest, if allowed, on capital is mentioned.
(c) Interest on capital is only charged during profits.
(d) Interest rates are set annually by the Income Tax Department.
Ans:- (b)
What is mentioned about the valuation of goodwill in the Partnership Deed?
(a) Goodwill is not valued during the partnership period.
(b) Method of valuing goodwill during admission, retirement, or death of a partner.
(c) Goodwill is divided equally among the partners every year.
(d) Goodwill valuation depends solely on profits.
Ans:- (b)
How does the Partnership Deed address the settlement of disputes among partners?
(a) Disputes are resolved by a majority vote.
(b) It defines the procedure for settling disputes.
(c) Disputes are avoided by having no verbal agreements.
(d) The government intervenes in all disputes.
Ans:- (b)
Assertion (A): The method of valuing goodwill is an essential part of the Partnership Deed.
Reason (R): Goodwill is always divided equally among the partners at the time of dissolution of the firm.
Options:
(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
(c) Assertion (A) is true, but Reason (R) is false.
(d) Assertion (A) is false, but Reason (R) is true.
Ans:- (c)
Assertion (A): The Partnership Deed specifies how disputes among partners shall be settled.
Reason (R): Partnership disputes are always resolved by dissolving the firm.
Options:
(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
(c) Assertion (A) is true, but Reason (R) is false.
(d) Assertion (A) is false, but Reason (R) is true.
Ans:- (c)
Assertion (A): The accounting period is generally fixed in the Partnership Deed to end on 31st March every year.
Reason (R): This date is chosen because it simplifies asset valuation for the firm.
Options:
(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
(c) Assertion (A) is true, but Reason (R) is false.
(d) Assertion (A) is false, but Reason (R) is true.
Ans:- (c)
Assertion (A): The Partnership Deed contains details about the partners’ capital contributions.
Reason (R): Capital contributions are calculated after profits are distributed among partners.
Options:
(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
(c) Assertion (A) is true, but Reason (R) is false.
(d) Assertion (A) is false, but Reason (R) is true.
Ans:- (c)
Assertion (A): The Partnership Deed defines the remuneration payable to the partners.
Reason (R): Remuneration to partners is mandatory regardless of any prior agreement.
Options:
(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
(c) Assertion (A) is true, but Reason (R) is false.
(d) Assertion (A) is false, but Reason (R) is true.
Ans:- (c)
