Partnership — Practice Quiz

Instability due to death, insolvency or retirement of a partner

Step 1: First, eliminate obviously incorrect options. Registration is NOT compulsory for partnership — in fact, flexibility in registration is a merit. Step 2: Partners absolutely can and do contribute capital — that is one of its merits. Step 3: Courts do not take decisions for a partnership — partners manage it themselves. Step 4: Instability is a real and recognized demerit. Events like the death, insanity, insolvency, or retirement of a partner can dissolve the firm. Step 5: This uncertainty about the firm's future makes partnership unstable compared to a company, making option C the corre

Partnership Deed

Step 1: A Memorandum of Association (MOA) is a document related to a Joint Stock Company, not a partnership. Step 2: Articles of Incorporation is a term used in the USA for companies. Step 3: A Prospectus is issued by companies to invite the public to subscribe to shares — not related to partnership. Step 4: When partners put their agreement in writing on a stamped paper, that document is called the Partnership Deed (also known as Articles of Partnership). Step 5: It contains details like profit-sharing ratio, capital contributions, rights and duties of partners, etc. Hence, Partnership Deed i

Equally among all partners

Step 1: This is a rule under the Indian Partnership Act, 1932. Step 2: If the partnership deed does not mention the profit-sharing ratio, the Act provides a default rule. Step 3: The default rule is that profits and losses are divided EQUALLY among all partners, regardless of their capital contribution. Step 4: This is different from a company where dividends are based on shareholding. Step 5: This rule exists to ensure fairness when partners have not made any specific arrangement. The correct answer is that profits are divided equally.

An unregistered firm cannot sue third parties to recover its dues

Step 1: Registration of a partnership firm is NOT compulsory under the Indian Partnership Act, 1932. So option A is wrong. Step 2: Third parties CAN sue an unregistered firm — it is the unregistered firm that loses rights, not third parties. So option B is wrong. Step 3: Registration can be done at any time — during formation or even later during its existence. So option D is wrong. Step 4: The key disability of non-registration is that the unregistered firm CANNOT file a suit against third parties to enforce its rights or recover dues. Step 5: This makes registration practically necessary, ev