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Why might a partnership deed include a rule about taking new loans?

Answer and explanation

Correct answer: To decide whose permission is needed

Taking a loan creates an external liability for the firm which can affect all partners. Therefore the deed often specifies who must give permission before new borrowings are incurred (e.g. all partners or specified partners). Option C may seem close because loans involve risk sharing, but the specific purpose of this clause is to control authorisation/creation of liabilities, not to set out the mechanics of risk-sharing. Exam tip: when a choice mentions ‘permission’ or ‘consent’ in the context of liabilities, it is often the correct answer.

Related tags

Partnership DeedLoan PermissionLiabilityPartnership AccountsPartnership DeedPartnership Accounts Basic ConceptsAccountancyClass 12 Mcq

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