Question

Give the provisions of the Partnership Act with respect to the interest on capital of the partners.

Answer 1

Case I: When the partnership agreement is silent about interest on capital, no interest will be allowed on capital.

Case II: When the partnership agreement provides for interest on capital but is silent as to whether it is a charge or appropriation, interest will be allowed only out of profits. In case of loss, no interest will be allowed.

Case III: When the partnership agreement provides for treating interest on capital as a charge, full interest will be allowed whether there is profit or loss.