- Definition
The term “Partnership” has been defined under section 4 of the Indian Partnership Act, 1932. It was in the year 1932 when a separate law of Partnership was passed, before that all the matters about the Indian Partnership were dealt with by a chapter in the Indian Contract Act, 1872.
This act is based on the provisions of the English Partnership Act, 1890. The provisions were not satisfactory in the Contract Act therefore it was repealed and the present Act was passed in the year 1932 with a view to make the law clearer and more satisfactory.
A partnership business, by definition, consists of two or more people who combine their resources to form a business and agree to share risks, profits and losses. Common partnership business examples include law firms, physician groups, real estate investment firms and accounting groups.
When two or more people come together as partners, they can form a partnership firm. The partnership is also governed by the Indian Contract Act in areas where the Partnership Act.
Provisions in the Indian Partnership Act
1. Distribution of Profits
In absence of an agreed ratio, partners share profits and losses equally even if they contribute capital in different amounts.
2. Interest on Capital
As per the Partnership Act, partners are not entitled to interest on capital and to draw any salary for the work done. Interest is allowed only if there is an agreement or usage to that effect.
3. Interest on Drawings
No interest is to be charged on drawings.
4. Interest on Partner’s Loan
Partner is entitled to claim interest on loan advanced by him at 6% p.a in absence of an agreed ratio.
5. Salary or Commission to Partner
When a partnership deed is not there or it is silent on the issue related to salary to a partner, then as per the rules of the partnership Act. 1932. no partner will be entitled to any salary.