Mutual Rights and Liabilities of Partners in a Partnership Firm

Section 4 of Indian Partnership Act, 1932 defines Partnership as, “Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all”.

The rights, duties and liabilities of partners make the mutual relationship between the partners more clear. Partners can themselves determined their rights by contract, but the  partnership act confers certain rights upon the partners. The rights and liabilities of partners can be illustrated as:-

Rights of Partners

i) Right to take part in the Conduct or Management of Business: Every partner, irrespective of the amount contributed by him, has an inherent right to participate in the conduct of business of the firm. However, by mutual agreement, some partners may be restricted to take part but, the right to participate in the management must be available to all

ii) Right to be Consulted & To  Take Decisions by Majority: Before taking up any major decisions, it is the right of the partners to be consulted and heard. Any disagreement should be solved by majority decision. But, no change in the nature or constitution of the business can be done without the consent of all partners.

iii) Right of Access To  Books: Every partner has a right to have access to and to inspect and copy the books of firm.

iv) Right to Share the Profits: Every partner has a right to share the profits equally, unless otherwise agreed upon, and bear the losses as well.

v)  Right to Receive Interest on Capital: If the partnership deed so decides that a partner is entitled to receive interest on capital at a fixed or certain rate, he has a right to receive it but, only out of profits.

vi) Right to be Indemnified: Every partner has a right to claim indemnity from the firm in respect of payments made or liabilities incurred by him in the ordinary and proper conduct of business and in emergency to  protect the firm from loss, provided the act should be such as would have been done by a person of ordinary prudence, in his own case and under similar circumstances.

vii) Right to Receive Interest on Advances: If a partner makes any advances beyond the amount of capital he has agreed to subscribe, he has a right to claim an interest at the rate of six percent per annum.

viii) Right to Act in Emergency: A partner has every right and authority to act in emergency, in order to protect the firm from loss, and the firm would be bound by such an act, provided the act would similar in his own case, under same situation.

ix) Right to Apply to the Property of the Firm for Business of the Firm: Subject to contract between the partners, every partner has a right to apply and use the property of the firm exclusively for business of the firm.

x) Right to Apply to the Property of the Firm for Business of the Firm: Subject to contract between the partners, every partner has a right to apply and use the property of the firm exclusively for business of the firm.

xi) Right to Prevent Introduction of a New Partner: Every partner has a right to prevent the introduction of any new partner in the firm. No person can be admitted into partnership firm without the consent of all the  partners.

xii) Right to Retire: A partner has a right to retire with the consent of all the partners. If the partnership is at will, he has the right to retire by giving due notice in writing to all other partners.

xiii) Right Not to be Expelled: A partner has a right not to be expelled by  any majority of partners without any cause.

xiv) Right of an Outgoing Partner to Carry on a Competing Business: Every partners has a right to carry on a business, similar to the partnership business, after his retirement with certain restrictions being that he cannot use the firm name, represent himself as carrying on the business of the firm or solicit the customs of persons who were dealing with the firm before he ceased to be a partner.

xv) Right of Outgoing Partner in Certain Cases to Share Subsequent Profits: If any partner of the firm dies or otherwise ceases to be a partner and the continuing partners continue to carry on business with the property of the firm, without any settlement being given to the outgoing partner, then in the absence of any contract, he himself or his representative are entitled to a share of profits made since he ceased to be a partner, as may be attributable to the use of his share of property or to interest at six percent per annum of his share in the property of the firms.

Liabilities of Partners

i) Joint & Several: Every partner is liable jointly and severally for all the acts of the firm done while he was a partner. The liability of a partner is always unlimited.

ii) Liability for Losses causes by HIM:  Every partner shall be liable to make good any loss caused to the firm by his fraud or willful neglect in the conduct of business. No partner can in any way exempt himself from such loss.

iii) Liability for Secret Profits: A partner is liable to account for and pay to the firm any private profits earned from the business of the firm or property or goodwill of the firm.

iv) Liability for Profits From Competing Business: If a partner carries on any business of the same nature and competing with that of the firm, he would be liable to account for and pay to the firm all profits made by him in that business.

v) Liability to Render true Accounts: A partner is liable to render true accounts to profit to other partners. He is liable to disclose any legal or illegal accounts which fall within the scope of business of the firm.

vi) Liability for Losses of the firm: As a partner has a right to share the profits of the firm so is he liable to share the losses equally unless otherwise agreed upon.

Source: Scribd.com

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