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Difficulty: MediumPartnership: Types, Deed, Rights, and Dissolution

Three entrepreneurs established a commercial logistics enterprise as a partnership without drawing up a formal Partnership Deed. During the financial year, one partner advanced a personal cash loan to the firm beyond their agreed capital contribution to assist with operational expansion. Under the statutory provisions of the Partnership Act, which of the following is this partner legally entitled to receive in the absence of an agreement?

  1. Interest at 5% per annum on the cash loan advanced to the firmAnswer
  2. B
    A monthly management salary for taking an active role in daily operations
  3. C
    A larger share of business profits proportional to their total capital contribution
  4. D
    Interest at 10% per annum on their initial capital contributed to the enterprise

Answer

The partner is entitled to receive interest at 5% per annum on the additional cash loan advanced to the firm.
In the absence of a Partnership Deed, the Partnership Act provides that any partner who advances money or a loan to the firm beyond their agreed capital contribution is entitled to interest at the rate of 5% per annum on such an advance.

Step-by-Step Solution

1
Identify the applicable statutory default rules under the Partnership Act when no formal Partnership Deed is executed.
The Partnership Act provides default provisions that automatically govern partner rights regarding salaries, profit sharing, interest on capital, and loans.
In the absence of an express written agreement, statutory implied terms take legal effect.
2
Evaluate each potential financial entitlement against the statutory provisions.
Loans advanced beyond capital earn 5% interest per annum, while salaries and interest on capital are barred, and profits must be split equally.
The law specifically encourages partners to provide temporary financial advances by granting them a guaranteed statutory interest rate of 5% per annum.

Key Concept

Statutory provisions governing partner rights in the absence of a Partnership Deed
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Topics

Partnership: Types, Deed, Rights, and Dissolution

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