Class 12 Accountancy Short Notes 2026-27

1.3 PARTNERSHIP DEED

A partnership comes into existence through an agreement between the partners. The law does not insist that this agreement be in writing, and an oral understanding is legally valid. In practice, however, it is wise to put the terms in writing, because a written document can be produced as evidence if a disagreement among the partners later reaches a court. The written document setting out the terms on which the partners agree to carry on business together is known as the partnership deed.

The deed normally records every matter that may affect the rights and duties of the partners towards one another. It states the names and addresses of the firm and of all the partners, the nature of the business and the place where it is carried on, and the date from which the partnership begins. It specifies the capital to be introduced by each partner and whether capital accounts are to be kept fixed or fluctuating.

The deed also lays down the ratio in which profits and losses are to be divided, the rate of interest, if any, to be allowed on capital and on loans, and to be charged on drawings, and any salary or commission payable to partners. Finally, it describes how goodwill and assets will be valued when the firm is reconstituted and how accounts will be settled on dissolution.