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Why may a partnership deed include a rule to maintain a minimum capital?

Answer and explanation

Correct answer: To maintain financial stability of the business

The rule for minimum capital is intended to ensure the business has sufficient working capital and funds to meet routine expenses and unexpected losses, thereby maintaining operational and creditor confidence. Option B is incorrect because profit–loss sharing ratios are specified by separate clauses about profit distribution, not by a minimum-capital clause. Option C is wrong since maintaining minimum capital is generally an internal agreement between partners, not a statutory requirement. Option D is incorrect because removal of a partner is governed by different deed provisions. Exam tip: associate “minimum capital” with working capital and financial stability when evaluating options.

Related tags

Partnership DeedMinimum CapitalFinancial StabilityPartnership AccountsClass12AccountancyPartnership DeedPartnership Accounts Basic Concepts

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