youl f ag ¢ Rights and Duties of Partners ina Partnership Firm Last updated : May 24th, 2021 07:28 pm ‘The mutual relations between the partners of a firm comes into existence through an agreement between the sald 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 ate 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riner from doing 32 & rt can, and will, restrain the other pal é Poe he otcounts without seeking dissolution and.so on for a paring the management. such ciroumstant it for dissolution, a sult for the right to, participate in Court of Law cam intervene under s injunction, Other remedies are a sult who has been wrongfully deprived of ‘The previously mentioned provisions ofthe law will be Bp icable unless there is no existing contract to the contrary ill be applicable unless there is no exist non to fd & {awn partnership agreements that gives only a limited power of managemen ‘among the partners. Itis common to find a term | ip agr i ith one or mn specific partner J of the partnership will remain vested wit! Srectaston of oer ae snare Court oF Law would generally be unwilling to interpose with the management with exclu , saeisariner (8), unless itis proven that something was done illegally or in the breach of trust among the partners. Section 12(c): Right to be consulted ‘ When tween the partners of a firm concerning the business of the firm, it shall be Wen. 9 deren ofan So among te pare. EVE partner inthe frm shall have the ight to express Nis 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. , the 2 majority rule would not apply when there is a change like the fim 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 ofthe 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 itis 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. itis common for partners to agree that a managing partner will receive over and above his share, salary or commission {or the trouble that he will take while conducting the business of the firm. — Section 13(b): Right to share profits Partners are entitied to share all the profits earned in the bu: imi siness equally. Similarly the losses sustained by the Parinrship frm is also equally contributed. The amount ofa pariners share must be ascertained by inquisgg whether there is an agreement in that behalf among the par nt, then e share riners. If there Is no ai at, then it can be \greement, can be presumed that the (f profits equal and the burden of proving that the shares are unequal, wil ie on the party alleging the same, Theis no relation between the proportion in whi have contributed to the capital of the Panee eel Partners shall share the profits and the percentage in which they Section 13(c): Interest on Capital3 & @ following elements must be ensured before a partner can be entitled to interest on the capital brought by the partner ‘Sithe business. 4. An express agreement to the same effect or the practice of a particular partnership. 2. Any trade custom to that effect; or 3. Astatutory provision which entitles him to such interest on the capital. Section 13(d): Interest on advances Ifa 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. Sec in 13(e): Right to be indemnified Al 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, ifthe payments, liability and action are such as @ prudent man ‘would make, incur or perform in his case, under similar circumstances. Section 31: Right to stop the admission of a new partner Al 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 withthe fm before the partner ceased to be a pert of the partnership firm,Section 37: Right of outgoing partner to share subsequent g profits his share of the property of the firm or interest at 6 per cent er annum on the amount of the partner's share in the property of the firm, Section 40: Right to dissolve the firm Apartner 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 Panners are legally bound to carry on the business ofthe partnership firm. The general responsibilities of a partner are 4. A partner is required to cany on the business tothe highest common advantage. 2. Apartner is required to be just and faithful to each other 3. Apartner 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 compen business or the firm because of a partner's fraud in the conduet of the busines te the firm for any damages caused to its 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) ofthe indian Partnership Act, every is legally bound to attend to his duties diligently to hi Gites relating tote conduct ofthe fms business, Moreover Socton (0) enumerates tala partners noe however, generally entitled to remuneration for participating in the conduct of the business. A partner is also bound to let hhis 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.‘e ection 16(a): To account for any profit 1 partner of a partnership firm derives any profit for himself for any transaction ofthe fm of from the use of the property for business connection of the frm or firm's name, then the partner is bound to account fr that profit and refund ito the firm. Section 16(b): To account and pay for profits of competing for business if'@ partner carries on a company of the same nature as the firm and competes accountable for and pay to the firm all the profits made in the business by the par liable for any losses caused in the business. with that of the firm, the partner must be rtner. The partnership firm will not be heldICLES row on yow on Rights ga : from one... on 111A of Section... + Resolution LES ror Cancel OPC) & fere Fara ae Introduction Every partner involved in the firm's business has mutual rights and obligations as a result of this Sections 9 to 17 of the Indian Partnership Act of 1932 outline-the requirements controlling all partners’ mutual relationships. These relationships are controlled by a pre-existing contract between parties, which may be or expressed via the course of business. Depending on the approval of all parties, the agreement may change. This article focuses on the rights and duties of partners in a Partnership Firm. Before understanding about the Rights and Duties of a Partners in a Partnership Firm, let's have a qui Partnership Firm?” look at “What is a What is a Partnership Firm? Individuals who have formed a business partnership with one another are referred to as “Partners,” a “Partnership Firm” is referred to as a “Partnership,” and the name under which their business is conducted is referred to as the “Firm Name.” The members of a partnership firm do not form a separate legal entity. Information on Rights and Duties of a Partners in a Partnership Firm Rights of a Partners in a Partnership Firm * Profit-Sharing One of the fundamental rights of partners is to share profits and losses (if mentioned in the deed). The profitloss sharing ratio is not always specified in the partnership agreement. In such instances, the partners might split the earings equally and ~ contribute equally to the losses that are experienced. : * Taking part in the Business Activity.- PICS | Meeting TMeeting I Meeting ny Law Each partner has the tight to parti ir EE pat ate in the management of the business, ‘Subject to the clause in the Partnership firm ..* Verifying Books of Accounts Each partner is entitled to participate in accounting and bookkeeping. They can view, inspect, and copy any of the firm's Books of accouints and financial statements, including thé tral balance, profit and loss account, and balance sheet, The right to examine, inspect, and get a copy of the books of accounts would be available to the deceased partner's heirs, legal representative, or lawfully authorized agent in the event of his or her death. + Partners right on Remuneration As a result of participating in the firm's business, no partner of the firm is ent led to receive any remuneration in addition to his Share of the profits. However, this rule can be overridden by an express agreement or a series of dealings, in which case the even in the absence of a contract, a partner may claim income if it is receivable as a result of the firm's continuous use. In other words, when it is customary to give a Partner income for operating the partnership firm's business, the partner may claim it even if there is no contract for payment. Itis typical for partners to agree that a managing partner will be compensated additionally his share, salary, or commission for the time and effort he devote to the firm's operations. excess of the amount of capital he will contribute, he is entitled to interest at the rate of 6% per year. While interest on capital accounts stops accruing upon dissolution, interest on advances Continues to accrue until the date of payment. It is worth noting that the Partnership Act distinguishes between a partner's capital contribution and his advance to the firm. The partner’s advance is treated as a loan that must be repaid-wi whereas the capital interest is only repaid interest if there is an agreement to that effect. +. Right to be compensated Teatanle eeaee ave rath De trved by Bi fo peyponts made ed fables care foe uel legitimate conduct of the firm's business. This also includes acting in an emergency to save the company from a loss Payments, liabilities, and actions are those that a prudent man would make, incur, or perform in the same situation.4 + Outgoing partner's right to a portion of future profits Ifa partner has died or ceased to be a partner and the remaining partners carry on the firm’s business with the firm's property without setting their accounts with the outgoing partner or his estate, the outgoing partner or his estate has the right to such share of the profit made since he ceased to be a partner as may be attributable to the use of his share of the firm's property or inter alias, at his or his representative's option. + The right to dissolve the company With the approval of all other partners, a partner in a partnership business has the authority to dissolve the partnership Where the partnership is at will, however, any partner may terminate the firm by giving written notice to all other partners of his desire to dissolve the firm. Know More: Types of Partners in a Partnership Firm Duties of a Partners in a Partnership Firm + To perform duties diligently Every partner is legally required to attend to his duties relating to the conduct of the firm’s business, according to Section 42(b) of the Indian Partnership Act. Furthermore, Section 13(a) specifies that a partner is not entitled to remuneration for participating in the running of the business in general. A partner is also obligated to share his expertise and skills with his partners. + To compensate for fraud ‘According to Section 10, a partnership firm's partner is responsible for compensating the firm for any losses incurred by the firm as a result of a partner's dishonesty in the conduct of the firm's business. + To compensate for losses and to keep track of any profit Apartnership firm's partners are all responsible for the firm’s injury in the same proportion. Ifa partner in a partnership firm makes a profit from the firm's transactions or from the use of the firm's property or business connections, or from the firm's name, the partner is required to account for that profit and retum it to the firm.+ Profits from competing for business must be tracked and paid for {fa partner conducts a competing business that is identical to the firm's, the partner is accountable forall earnings generated in the business and must pay them to the firm. Any business losses will not be the responsibility of the partnered firm. * To compensate for wilful misconduct Apartner in a partnefship firm must compensate the firm for any damages or losses caused by deliberate carelessness in the conduct of the firm’s business, according to the Section. + Other Duties of Partners in a Partnership Firm Partners are legally obligated to continue the partnership firm's operations. The following is a list of a partner's general 4. A partner is obligated to carry on the business to the greatest possible benefit of all parties involved. 2. Apartner must be ethical and faithful to his or her fellow partners. 3. A partner must provide the true account and all information about all matters affecting the Partnership Firm to any other partner or his or her legal representative Conclusion partner to work for the firm's greatest common good and to work carefully to avoid any losses. Mutual rights of the firm are normally determined by the provisions of the agreement, but there are some rights bestowed by the act that can be canceled by entering into an agreement to the contrary if there is no clear agreement between the partners.