Concept:When partners do not sign a partnership deed, the law provides automatic default rules to regulate the partnership.
Explanation:In the absence of a partnership agreement, no partner receives interest on capital contributed.
No partner earns a salary for working in the business.
No interest is charged on a partner’s drawings.
Profits and losses are shared equally among all partners.
However, if a partner loans money to the partnership beyond the capital he agreed to contribute, he is entitled to interest on that loan.
By law, the interest rate on such a partner’s loan is fixed at
5% per annum.
Thus, a loan given to the partnership by a partner attracts interest at
5% yearly when there is no partnership agreement.
This legal interest applies automatically and cannot be refused by the other partners.
Therefore, the correct rate is
5%, not
721%,
10%, or
15%.
Answer:B.
5%