Concept:When partners do not sign a partnership agreement, the rules of the Partnership Act 1890 (especially Section 24) automatically apply.
Explanation:Under default partnership rules, these provisions take effect:
• Profit and loss are shared equally among all partners.
• No partner is entitled to a salary merely for acting in the business.
• No interest is allowed on partners' capital contributions.
• No interest is charged on partners' drawings.
• Partners who lend extra money to the business receive interest on the loan at
5% per annum.
• A new partner may not be introduced without the consent of all existing partners.
Now examine the options given:
Option A (no salary) applies.
Option C (no interest on drawings) applies.
Option D (equal profit/loss sharing) applies.
However, Option B states that there is interest on capital. This is incorrect under the default rules because partners receive no interest on their capital.
Therefore, the provision that does
not take place is the one that says there is interest on capital.
Answer:B. There is interest on capital.