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Difficulty: Very hardPartnership: Types, Deed, Rights, and Dissolution

Ade, Bello, and Chidi established a general business partnership in Nigeria without executing a written Partnership Deed. Ade contributed ₦6,000,000 in capital, Bello contributed ₦4,000,000, and Chidi contributed no capital but managed daily operations. During the financial year, Ade advanced an additional personal loan of ₦500,000 to the firm. At year-end, the firm realized a net profit of ₦1,200,000. Under the statutory implied provisions of the Partnership Act, how must the loan interest and net profit be distributed?

  1. Ade receives 5% per annum interest on his loan advance, and the net profit is shared equally at ₦400,000 each among Ade, Bello, and Chidi.Answer
  2. B
    The net profit is shared in the capital contribution ratio of 6:4 between Ade and Bello, while Chidi receives a management salary and Ade receives no interest.
  3. C
    Ade receives 10% commercial interest on his loan advance, and the remaining profit is divided 60% to Ade and 40% to Bello, excluding Chidi for lack of capital contribution.
  4. D
    Ade receives 5% interest on his capital contribution of ₦6,000,000 first, and the remaining profit is shared equally between Ade, Bello, and Chidi.

Answer

Ade is entitled to 5% interest per annum on his ₦500,000 loan advance, and the net profit of ₦1,200,000 must be shared equally (₦400,000 each) among all three partners.
When partners do not execute a Partnership Deed, section 24 of the Partnership Act outlines default rules: all partners are entitled to share equally in capital and profits, no partner is entitled to interest on capital before profit calculation, no partner is entitled to remuneration for acting in the business, and a partner making an advance beyond capital is entitled to interest at 5% per annum.

Step-by-Step Solution

1
Identify the statutory default rules applicable when no written Partnership Deed exists.
Under the Partnership Act 1890 applicable in Nigerian Law, default statutory implied terms apply automatically.
The absence of a written agreement means statutory provisions govern partner rights, profit sharing, and interest allocations.
2
Determine the entitlement and rate of interest on partner loan advances.
Ade is entitled to interest at the statutory default rate of 5% per annum on the ₦500,000 loan.
Advances made by a partner beyond their agreed capital contribution draw a statutory 5% interest per annum prior to profit distribution.
3
Determine the profit-sharing ratio and entitlement to partner remuneration or interest on capital.
Net profit is divided equally (1:1:1), giving ₦400,000 each to Ade, Bello, and Chidi. No partner receives a management salary or interest on capital.
Without an agreement, all partners share profits and losses equally regardless of capital contributed, and no partner is entitled to salary or interest on capital.

Key Concept

Statutory Implied Provisions in the Absence of a Partnership Deed
Estimated Time:1m 30s
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Topics

Partnership: Types, Deed, Rights, and Dissolution

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