Rights and Duties of Partners in a Partnership Firm
Rights and Duties of Partners in a Partnership Firm
The mutual relations between the partners of a firm comes into existence through an agreement between the said partners. This gives rise to mutual right and duties to every partner involved in the firm’s business. Section 9 to 17 of the Indian Partnership Act of 1932 lays down the provisions governing the mutual relations of all the partners. These relations are governed by an existing contract among them which may be implied or expressed by the course of dealing. The agreement may vary depending on the consent of all the partners. In this article, we look at the various rights and duties fo partners in a partnership firm in detail.
Rights of a Partner
The following are the rights of a partner in a partnership firm.
Section 12(a): Right to take part in the conduct of the Business
All the partners of a partnership firm have the right to take part in the business conducted by the firm as a partnership business is a business of the partners, and their management powers are generally coextensive. If the management power of a particular partner is interfered with and the individual has been wrongfully precluded from participating, the Court of Law can intervene under such circumstances. The Court can, and will, restrain the other partner from doing so by injunction. Other remedies are a suit for dissolution, a suit for accounts without seeking dissolution and so on for a partner who has been wrongfully deprived of the right to participate in the management.
The previously mentioned provisions of the law will be applicable unless there is no existing contract to the contrary among the partners. It is common to find a term in partnership agreements that gives only a limited power of management to a specific partner or a term that the control of the partnership will remain vested with one or more partners to the exclusion of others. In such a case, the Court of Law would generally be unwilling to interpose with the management with such partner (s), unless it is proven that something was done illegally or in the breach of trust among the partners.
Section 12(c): Right to be consulted
When a difference of any sorts arises between the partners of a firm concerning the business of the firm, it shall be decided by the views of the majority among the partners. Every partner in the firm shall have the right to express his opinion before the decision is made. However, there can be no changes like the business of the firm without the consent of all the partners involved. As a routine matter, the opinion of the majority of the partners will prevail. Although, the majority rule would not apply when there is a change like the firm itself. In such situations, the unanimous consent of the partners is required.
Section 12(d): Right of access to books
Every partner of the firm, regardless of being an active or a sleeping partner, is entitled to have access to any of the books of the partnership firm. The partner has the right to inspect and take a copy of the same if required. However, this right must be exercised bonafide.
Section 13(a): Right to remuneration
No partner of the firm is entitled to receive any remuneration along with his share in the profits of the business by the firm as a result of taking part in the business of the firm. Although, this rule may always vary by an express agreement, or by a course of dealings, in which case the partner will be entitled to remuneration. Thus, a partner may claim remuneration even in the absence of a contract, when such remuneration is payable under the continued usage of the firm. In simpler words, where it is customary to pay remuneration to a partner for conducting the business of the partnership firm, the partner may claim it even in the absence of a contract for the payment of the same.
It is common for partners to agree that a managing partner will receive over and above his share, salary or commission for the trouble that he will take while conducting the business of the firm.
Section 13(b): Right to share profits
Partners are entitled to share all the profits earned in the business equally. Similarly, the losses sustained by the partnership firm is also equally contributed. The amount of a partner’s share must be ascertained by inquiring whether there is an agreement in that behalf among the partners. If there is no agreement, then it can be presumed that the share of profit is equal and the burden of proving that the shares are unequal, will lie on the party alleging the same.
The is no relation between the proportion in which the partners shall share the profits and the percentage in which they have contributed to the capital of the partnership firm.
Section 13(c): Interest on capital
If a partner subscribes interest on capital is payable to the partner under the partnership deed, then the interest will be payable out of the profits only in such a case. In a general rule, the interest on a capital subscribes by partners is not permitted unless there is an agreement or a usage to that effect. The underlying principle in this provision of law is that with concern to the capital brought by a partner in the business, the partner is not a creditor of the firm but an adventurer.
The following elements must be ensured before a partner can be entitled to interest on the capital brought by the partner in the business.
- An express agreement to the same effect or the practice of a particular partnership.
- Any trade custom to that effect; or
- A statutory provision which entitles him to such interest on the capital.
Section 13(d): Interest on advances
If a partner makes an advance to the partnership firm in addition to the amount of capital to be contributed by him, the partner is entitled to claim interest thereon at 6 per cent per annum. While the interest on capital account ceases to run on dissolution, the interest on advances keeps running even after dissolution and up to the date of payment. It can be noted that the Partnership Act makes a distinction between the capital contribution of a partner and the advance made by him to the firm. The advance by the partner is regarded as loans which should bear interest while the capital interest takes interest only when there is an agreement to this effect.
Section 13(e): Right to be indemnified
All the partners of the firm have the right to be repaid by the firm in respect of the payments made and the liabilities incurred by him in the ordinary and proper conduct of the business of the firm. This also includes the performance of an act in an emergency for protecting the firm from a loss, if the payments, liability and action are such as a prudent man would make, incur or perform in his case, under similar circumstances.
Section 31: Right to stop the admission of a new partner
All the partners of a partnership firm have the right to prevent the introduction of a new partner in the firm without the consent of all the existing partners.
Section 32(1): Right to retire
Every partner of a partnership firm has the right to withdraw from the business with the consent of all the other partners. In the case of a partnership formed at will, this may be done by giving a notice to that effect to all the other partners.
Section 33: Right not to be expelled
Every partner of a partnership firm has the right to continue in the business. A partner cannot be dismissed from the firm by any majority of the partners unless conferred by a partnership agreement and exercised in good faith and for the advantage of the partnership firm.
Section 36(1): Right of outgoing partner to carry on a competing business
A partner outgoing from the partnership firm may carry on a business competing with that of the firm. The partner may even advertise such activity but has to do so without using the firm’s name or representing himself as carrying on the business of the firm or soliciting the clients who were dealing with the firm before the partner ceased to be a part of the partnership firm.
Section 37: Right of outgoing partner to share subsequent profits
If a partner has passed away or ceased to be a partner and the existing partners carry on the business of the firm with the property of the firm without any final settlement of accounts as between them and the outgoing partner or his estate, the outgoing partner or his estate has, at his or his representative’s option, the right to such share of profit made since he ceased to be a partner as may be attributable to the use of his share of the property of the firm or interest at 6 per cent per annum on the amount of the partner’s share in the property of the firm.
Section 40: Right to dissolve the firm
A partner of a partnership firm has the right to dissolve the partnership with the consent of all the other partners. However, where the partnership is at will, the firm may be dissolved by any partner by giving notice in writing to all the other partners of his intention to dissolve the firm.
Duties of a Partner
The following are the duties of a partner in a partnership firm.
Section 9: General duties of a partner
Partners are legally bound to carry on the business of the partnership firm. The general responsibilities of a partner are listed below.
- A partner is required to carry on the business to the highest common advantage.
- A partner is required to be just and faithful to each other
- A partner has to render to any other partner or his legal representative about the true account and all the information of all the things affecting the partnership firm.
Section 10: To indemnify for fraud
According to Section 10, a partner of the partnership firm is liable to compensate the firm for any damages caused to its business or the firm because of a partner’s fraud in the conduct of the business of the firm.
Section 13(f): To indemnify for willful neglect
According to the Section, a partner of a partnership firm must compensate the firm for any damages or loss caused to it by willful neglect in the conduct of the business of the firm.
Section 12(b) & Section 13(a): To attend duties diligently without remuneration
According to Section 12(b) of the Indian Partnership Act, every partner is legally bound to attend to his duties diligently to his duties relating to the conduct of the firm’s business. Moreover, Section 13(a) enumerates that a partner is not, however, generally entitled to remuneration for participating in the conduct of the business. A partner is also bound to let his partners have the advantage of his knowledge and skill.
Section 13(b): To share losses
All the partners of a partnership firm are liable to contribute equally to the injury sustained by the firm.
Section 16(a): To account for any profit
If a partner of a partnership firm derives any profit for himself for any transaction of the firm or from the use of the property or business connection of the firm or firm’s name, then the partner is bound to account for that profit and refund it to the firm.
Section 16(b): To account and pay for profits of competing for business
If a partner carries on a company of the same nature as the firm and competes with that of the firm, the partner must be accountable for and pay to the firm all the profits made in the business by the partner. The partnership firm will not be held liable for any losses caused in the business.