Partnership deed is a partnership agreement between the partners of the firm on which
outlines the terms and conditions of the partnership between partners.
This is a legal written document which helps ensure that parties, overtime do not end up
in some misunderstanding, conflicts or harassment.
It is always suggested that there must be a partnership deed among the partners before
getting into any partnership business. But sometimes a partnership is started without
signing any such document. In case the partnership deed is absent, then treatments will
be applicable as per the provisions of the Partnership Act.
For Tanzania the law that governs partnership is part X of the Law of contract Act, Cap
345.
The following are the provisions that are relevant to the partnership accounts in
absence of partnership deed.
Profit/loss Sharing Ratio:
When a partnership deed is not made or even if it is made and is silent on sharing of
profit or losses among the partners of a firm, then according to the Partnership Act,
profits and losses is to be shared equally among all the partner of the firm.
This is regardless of the capital contributed by partners, each partner will get equally
share.
Example if the Residual profit obtained for the year was TZS 30 million, then the
share on profit to Bayeyo, Dydah and AsmaB will be TZS 10 million each.
Interest on Capital:
When there is absence of partnership deed or the partnership deed is silent on the
issue related to interest on partner’s capital, then according to the Partnership Act,
no interest on partners’ capital will be provided. However, if they mutually agree on
the rate of the interest on capital, then they are free to give interest on capital out of
the profit of the firm.
Interest on Drawings:
If there is no partnership deed the issue related to the interest on drawing will be
handled according to the provisions Partnership Act,
The Act states that no Interest on drawings will be charged from the partners.
Example if Bayeyo withdraws TZS 1 million for personal use, then only withdrawn
amount will be debited to Bayeyo’s Current or Capital account
Interest on Partner’s Loan:
When there is no partnership deed among the partners or the partnership deed is
silent on interest on partner’s loan, then according to the Partnership Act, The
partners are entitled for 6% p.a interest on the loan forwarded by them to the firm
Example if Dydah provided Loan of TZS 20 million to their partnership, then Dydah
is entitled to receive 6% of 20 million per annum which is TZS 1.2 million. Such
amount will be credited to the Dydah’s Currrent or Capital account.
Salary to Partner:
When partnership deed is not there or it is silent on the issue related to salary to a
partner, then as per the rules of the partnership Act.. No partner will be entitled to
any salary.
This means that in absence of the partnership deed, it doesn’t matter if the partner is
Active or dormant, they shall not receive salary.
Capital contribution:
If there is no partnership deed, then not every partner must have contributed his
share of capital. Some partners like READ partners does not contribute any capital
to the partnership but allows the business to use his/her name as means of
popularity and take advantage of the name to earn more customers
Right to inspect books of account.
On the absence of the partnership deed, The partnership Act allows and gives right
all partners to inspect books of account of the partnership and query and demand
answers if need be.
Minor:
On the absence of the partnership deed,The partnership act allows Minor (18 age
and below) to be admitted in the partnership by consent off all existing partners.
Settlement of disputes:
If there is no partnership deed, then any partner can settle disputes to the external
parties related to the partnership.
Example if Dydah caused a dispute with customer due to overpricing, then Bayeyo
or AsmaB can settle this on behalf of the partnership.
Court Final decision:
If the partnership somehow ends up in a courtroom, usually partnership deed serves
as a legal document that can influence the final decision served.
However if the partnership deed is absent, then the Partnership Act will be used
instead.