Introduction of Rights and Responsibilities of Parties in a Partnership Firm
Partnership is considered as the relation between the persons who have agreed to share the profits of a business carried on by all or any of them actions all. Person, who have entered into partnership with one another are identified as partners.When two or more persons carry on business to share profits and losses equally is usually considered as a Partnership Firm.
The following article will give you a clear vision on the Rights and Duties of a partners in a Partnership Firm, legally obligated under The Partnership Act, 1932 which is necessary from the course of conduct of the parties to the agreement.
Rights of the Partners under Section 12 of Partnership Act, 1932.
- Right to participate in the conduct of business: each partner has a right to participate in the conduct of the business. A partner right to participate in business is curtailed in a case where some of them only participate in the business affairs of the firm. this right can be curtailed only when the partnership deed states so.
- Rights to access and inspect books and accounts: This right is also given to the active and dormant partner. Each partner has a right to access and inspect the book of account of the firm. In case of death of a partner, his legal heir can inspect the copies of accounts.
- Right to be indemnified: The partners have a right to be indemnified for the decision taken in the course of the business. But such a decision is to be taken in the case of urgency and should be of such nature that the ordinarily prudent person would take.
- Rights to express his opinion: Each partner has a right to express his opinion with regard to the business affairs. They also have the right to participate in the decision-making process.
- Rights to get interested on capital or advances: Generally, partners are not entitled to get any interest on the capital that they invest .but when they agree to give interest, then such interest would be paid from the capital. They are also entitled to 6%interest on the advances made towards the business of the firm.
- Right to share profit and loss: The partners share the profit and losses equally in the absence of any deed. But when there is a partnership deed prescribing the ratio of profit and losses it will be shared in accordance with the partnership deed.
Duties of Partners for a Partnership Firm
- Duty to carry on business for common advantage: According to Section 9 of the Indian Partnership Act, 1932 General duties of partners are bound to carry on the business of the firm to greatest common advantage, to be just and faithful to each other.
- Duty to render true accounts.: According to Section 9 of the Indian Partnership Act, 1932 It is Duty of Partner to render true accounts and full information of all things affecting the firm to any partner, his heir or legal representative.
- Duty to indemnify for loss caused by fraud.: According to Section 10 of the Indian Partnership Act, 1932, Every partner shall indemnify the firm for any loss caused to it by his fraud in the conduct of the business of the firm.
- Duty to attend Diligently: According to Section 12(b) of the Indian Partnership Act, 1932, every partner is bound to attend diligently to his duties in the conduct of the business.
Effect on Rights and Duties after a change in Partnership Firm
The nature of the existing relationship between partners will be affected whenever there is a change in the firm’s constitution. Such changes occur in the following situations:
- Change in constitution of the firm due to incoming or outgoing or partner.
- Expiry of the pre-determined term of the firm.
- Carrying out of additional business undertakings than originally agreed upon.
Mutual rights and duties of the partners will continue to be the same as they existed prior to such changes, but partners can change this by making a fresh Partnership deed.
Relation of partner with one another in a Partnership Firm
All the partners have a right to create their own terms and condition with regard to the affairs of the business in the partnership deed. The Indian Partnership Act,1932 has prescribed the provision to govern the relation of partners and this provision is applicable in case when there is no deed.
Section 11: Right to determine the relationship by contract
The partnership deed determines the general administration of the partnership like what will be the profit-sharing ratio, who will do what work etc. The partnership contains the rights and duties of the partners.
Such a deed can be made either expressly or by necessary implication. For example, if one partner looks into sales daily and other partners do not object to it, his conduct will be presumed as the right of all the partners in the absence of written agreement. So it can be concluded that all partners create a right for their own.
Alteration of Rights and Duties under Section 17 of Partnership Act, 1932.
The existing relationship between the partners come to an end when there is a change in the constitution of the firms. Such changes in the constitution of the firm may occur due to the following reasons:
- Expiration of term of the firm.
- Carrying out the additional business other than agreed upon.
- Changes in the composition of members due to admission, retirement or the death of a partner.
The duties and rights of partners remain the same until there is any change in agreement but such right and duties may vary or modified by creating a fresh agreement.
Legal Observation of Rights and Duties under Partnership Firm
- Cox vs Hickman
In this case , Smith and his son carried on the partnership business as Smith & son. Owing to financial crisis, they assigned the business to certain creditors as trustees to catty on the business and discharge the debts.While the business was being managed by the trustees, the plaintiff, Hickman supplied goods to the firm and sued the firm for payment. The defendant Cox, who was one of the trustees of the firm was sued as partner though he did not take part in the transaction.
It was held that the defendant was not liable on the ground that there was no partnership.
- Jayalaxmi Oil Mills vs Income Tax Commissioner
The Andhra Pradesh High Court held in this case that registration is complete when the statement in the prescribed form signed and verified by all the partners accompanied by the prescribed fee is presented to the Register .The act of the Registrar making an entry in the Register of firm is only a clerical act.
About the Author – Aditya Pratap
Aditya Pratap is a lawyer practising in Mumbai. He argues cases in the Bombay High Court, Sessions and Magistrate Courts, along with appearances before RERA, NCLT and the Family Court. For further information one may visit his website adityapratap.in or view his YouTube Channel to see his interviews. Questions can be emailed to him at firstname.lastname@example.org.
Cases argued by Aditya Pratap can be viewed here.