Managing Relationship with a Business Partner – Mutual Legal Rights and Obligations:

Aditya Pratap is a lawyer practising in the Bombay High Court. He can be reached at aditya@adityapratap.com

What is Partnership Firm?

When two or more people get together to start a business and share profits, a partnership firm comes into existence. Partnership firms in India are governed by the Indian Partnership Act of 1932.

Under Section 57 of the Partnership Act, the Registrar of Firms has been established in every state. He is tasked with basic regulatory oversight over partnership firms. Various functions such as registration of partnership firms, changes in partners, winding up and the like are overseen by him.

Partnership Deed – Why It is Important:

A Partnership Deed is the most fundamental legal document governing the legal relationship among the partners of a firm. It is a multi-party agreement describing, among things, the respective amounts of capital invested by each partner. Based on the proportion of capital contributed by him, a partner is entitled to a commensurate share in the profits of the firm.

It is important to know that the Partnership Deed confers tremendous freedom upon the firm’s partners to decide upon the terms and conditions of the partnership. Partners can decide whether to distribute profits in proportion of their respective capital contributions or any other manner.

Duties of One Partner towards the Others:

Under Section 9 of the Partnership Act, partners of a firm must carry on business to the greatest common advantage. They must be just and faithful to each other. Every partner is duty-bound to maintain true accounts of the firm and provide full information of the business to any other partner or legal representative.

Since partners are legally bound to maintain honesty and transparency in their dealings with fellow-partners, any act of fraud will result in repercussions for the erring partner. An errant or irresponsible partner is bound to indemnify the entire firm for loss caused by fraud or misconduct.

For example, if a partner mischievously diverts the firm’s stock-in-trade for his personal use, he will be obliged to indemnify the firm under Section 10 of the Partnership Act.

Participation in the Conduct of Business:

Having contributed capital to starting the firm, every partner has a right to participate in the conduct of business activities. Partners can mutually agree upon who would handle what. The division of responsibilities can be neatly recorded in the Partnership Deed, which the partners shall comply with at all times.

Decision by Majority Vote:

Right of Partner to Inspect and Examine Books of Accounts:

Every partner of a firm has a right to inspect its books of accounts, by virtue of Section 12 of the Indian Partnership Act, 1932.

Spread the word
Advocate Aditya Pratap
About Advocate Aditya Pratap 64 Articles
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 aditya@adityapratap.com.