Rights & Duties of Partners (Law of Partnership)

Partnership is one of the most famous business arrangements among entrepreneurs and businessmen. Individuals, corporations, interest-based groups, schools, governments, and combinations can all form partnerships. An agreement between the business’s partners creates mutual interactions. This establishes joint rights and obligations for all partners participating in the firm’s business. Sections 9 to 17 of the Indian Partnership Act 1932 provide the laws controlling the reciprocal interactions of all partners. These ties are controlled by an existing contract, which may be implicit or explicit during trading. The agreement may change based on the approval of all parties.

Geeky Takeaways:

• Partnership is one of the most famous business arrangements among entrepreneurs and businessmen.
• A partnership is a structure in which participants, known as business partners, agree to work together to further their shared interests.
• In India, provisions related to partnership are covered in the Indian Partnership Act 1932.
• Joint rights and obligations exist for all partners participating in the firm’s business—sections 9 to 17 of the Indian Partnership Act 1932.
• A mutual agency should be present between the partners to create a partnership.

Rights of Partners under Indian Partnership Act 1932

1. Right to Participate in the Conduct of Business: All partners in a partnership have the right to participate in the firm’s operations because the partnership business is the partners’ business, and their management abilities co-exist in most cases. If the management authority of a specific partner interferes and the individual is unfairly barred from participation, the court may intervene in such instances. The court may prevent the other partner from doing so by prohibition.

2. Right to Have Access to Books of Accounts: Each partner in the organization, whether active or slumber, gets access to the partner company’s books. The partner reserves the right to review and request a copy if required. However, this power must be utilized by Bona fide.

3. Right to be Consulted: When any kind of difference arises between the partners of the company with respect to the business of the firm, it is determined by the majority views of the partners. Every partner in the organization can express opinion before making a decision. Furthermore, it is to be noted that there can be no change in the business without taking any consent from partners involved, and it can be said that opinion of partners in a must. However it may be noted that the rule of majority does not apply in case of change as an organization.

4. Right to Compensation: No partner is allowed to earn any payment in addition to his partner’s share of the company’s profits for participating in its operations. However, this rule will always exist. Express may vary by agreement or transaction, in which case the partner is entitled for a reward. As a result, the partner might be compensated even in the absence of a contract; such a reward is given for the continuous usage of the firm. In other words, if it is common for a partner to pay a wage for operating a company’s operations, he may claim it even if there is no agreement for the same payment.

5. Right to Share Earnings: Partners are entitled to an equal share of any firm earnings. Similarly, the risks to the partner firm make an equal contribution. The partner must confirm the amount of the share by enquiring whether the partners have agreed on it. If there is no agreement, the responsibility of showing that the profit shares are equal and unequal may be placed on the party making the same charges. There is no relationship between the partners’ profit-sharing ratio and the proportion they contribute to the partner company’s capital.

6. Right to Receive Interest on Capital: In general, a partner cannot claim interest on capital. He/she is entitled to interest on money (capital) only if the following requirements are met:

• Express agreement or special partnership
• Commercial practice to this effect
• Consider a legal provision that qualifies for such interest.

It is important to note that there may be instances where interest on capital is implied or required by law even if not explicitly stated in the deed.

7. Right for Indemnification: Partners have the right to demand reimbursement from the company. This entitlement applies to business management and payments made in an emergency to safeguard the firm from loss. A partner can be paid for payments made in regular and proper business behavior for actions that a normal and wise person would take in an emergency.

Duties of Partners under Indian Partnership Act 1932

1. Duty to Behave in Good Faith: The partners must cooperate in good faith for the greater good. The partner must work for higher profit for the firm. The partner should not obtain hidden gains at expense. A partner must disclose accurate and complete information on all matters affecting the company to any other partner or his legal agent. This is an absolute condition, and no partner may contract himself, even if other partners consent to do so. Destiny persisted long after the alliance ended. The partners, as well as the partner’s legal representatives, owe the ex-partner money.

2. Duty to Render Truthful Accounts: According to this legislation, partners agree to disclose and provide comprehensive information regarding concerns affecting the business to any partner or his or her legal representatives. The partner should not hide anything from the other co-partners about the company’s business. Each partner has access to the company’s accounts.

3. Duty to Indemnify for Deception: If the firm suffers a loss as a result of the partner’s actions, he must compensate his partner for such loss. The purpose of this obligation is to encourage partners to deal with customers honestly and fairly. Entering into a contract does not, however, waive the need to indemnify for fraud. Because engaging into such an arrangement violates public policy. This clause is absolute. This is not subject to the provisions of the partners’ contract. The clause in the partnership deed exempting a particular partner from accountability for damages caused by his deception is invalid and will not be enforced.

4. Duty not to Compete: According to this statute, if a partner profited from participating in a comparable or rival business with the firm, the partner must account for those earnings. However, the partner may pursue any business beyond the boundaries of the firm. The partnership deed might affect the responsibility. Partners can sign into an agreement that permits them to pursue a business that competes with the firm or prohibits them from conducting business outside of the company. If a person violates such agreement and runs a personal business that does not compete with the operation of the firm, such partner is not obligated to calculate earnings. However, his co-partners may request to terminate the partnership.

5. Duty to Be Diligent: A partner must be vigilant in his responsibilities. A partner cannot be held accountable for mistakes of judgment or activities done in good faith. The duty emphasizes the importance of prudence and diligence in managing partnership business, aiming to protect the interests of all partners and the partnership as a whole. Partners must exercise due diligence in decision-making, financial management, and fulfilling their obligations to ensure the effective and efficient operation of the partnership.

6. Duty to Correctly Use the Firm’s Property: According to this statute, the company’s property must be owned and utilized solely for the company’s commercial purposes. If a partner does not exploit the property for personal gain and does so, he is responsible to all co-partners. He may be held accountable for any harm resulting from such use. This responsibility can be avoided by signing an agreement to the contrary.

7. Duty to Account for Personal Profits: If a partner utilizes the company’s property for profit, he must account for it. This responsibility stems from the partners’ fiduciary relationship. Partners are obligated to promptly disclose any opportunities or transactions that may result in personal gain and are accountable for any profits derived from such activities, thereby upholding integrity and trust within the partnership. Failure to adhere to this duty may lead to legal repercussions and erode the foundation of trust essential for a successful partnership.

Conclusion

In a partnership, the participants can reach an agreement outlining their respective rights and obligations. Because the connection between partners in a partnership is based on good faith and fair dealing, it is each partner’s obligation to behave in the best interests of the firm and to go above and beyond to avoid any losses. In a Partnership Firm, the partners have the freedom to establish their mutual rights and duties. Profit and loss aversion are the shared goals of partner relationships. The legal provision regulates the spouses’ joint rights. Furthermore, these rights are guaranteed by the Partnership Act 1932, which can be terminated if any of the parties violates them.

Rights and Duties of Partners- FAQs

Which act covers the provision of partnership?

In India, provisions related to partnerships are covered under the Indian Partnership Act 1932.

If a partnership deed is silent about interest on capital, can a party claim it?

Interest on capital is only due if the deed specifies it. A man cannot claim an interest without a deed.

How are profits distributed in a partnership firm?

Profits must be split in line with the ratio agreed upon by them in their deed. They can adjust this ratio with mutual consent. If no such act exists, they each have an equal portion.

What is the true test of partnership?

The fundamental test of cooperation is mutual agency rather than profit sharing. Without mutual agency, there can be no relationship.

Can partners earn secret profits from the business?

If a partner utilizes the company’s property for profit, he must account for it. This responsibility stems from the partners’ fiduciary relationship.