Why is it considered desirable to make the partnership agreement in writing?
It is considered desirable to make the partnership agreement in writing to avoid disputes between partners. Although an oral agreement is equally valid, a written agreement serves as evidence of the terms and conditions agreed upon by the partners.
A written document, known as the Partnership Deed, contains details about all aspects affecting the relationship between partners, such as the contribution of capital, profit-sharing ratio, and interest on capital or loans. Having these terms documented prevents misunderstandings and confusion in the future.
Furthermore, a written agreement ensures that the partners do not have to rely on the default provisions of the Indian Partnership Act, 1932 in the absence of an express agreement. It provides a clear reference for settling disputes and can be altered with the consent of all partners.
Explanation
The textbook explicitly states that while an oral agreement is valid, a written agreement is preferred 'in order to avoid disputes.' The context highlights that a written Partnership Deed covers all aspects affecting the relationship (capital, profits, interest, etc.) and acts as a legal basis, preventing ambiguity that might lead to conflicts or the application of the Partnership Act's default provisions.