Partnership Firm

Rights and Duties of Partners in a Partnership Firm

A partnership company usually has an agreement which includes each partner's duties and rights. However, in the absence of a contract, there are laws that the partners in a partnership firm need to follow in order to be legally correct.

The relationship between partners is governed by two essential concepts. The first principle states that every partner in a partnership firm is allowed to come to an agreement regarding their respective rights and obligations. But certain obligations outlined in The Indian Partnership Act, 1932, cannot be changed by signing a contract to the contrary. This idea is officially recognised by Section 11 of the Act. The second idea is fundamental in nature. It states that partners’ relationships with one another must be in the best possible good conduct. It states that each partner is the other’s agent, making any agreement made by any of the partners obligate the other partners as well. Thus, certainty and trust between partners form the foundation of a partnership relationship.

What Are the Rights of a Partner in a Partnership Firm?

A partnership firm’s partners are entitled to the following rights

Right to Participate in the Operation of the Business Under Section 12(A)

As a partnership firm is a corporation of the partners, and their management abilities are typically coextensive, all partners of a partnership business have the right to participate in the business conducted by the company. The Court of Law has the authority to step in when a partner’s management authority is tampered with, and the person has been unjustly barred from participation. The other partner can be prevented from doing so by an order issued by the court. For a partner who has been unfairly denied the opportunity to participate in management, additional remedies include a lawsuit for dissolution, a lawsuit for assets without demanding abolition, and so forth.

Right to Consult Under Section 12(C)

When a disagreement of any kind emerges between partners in a company over commercial matters, it will be settled by the majority opinion of the partners. Before a decision is taken, every partner in the organization is entitled to voice their opinion.  However, changes to the company’s business activities cannot be made without all of the partners’ approval. Usually, the majority opinion of the partners will be taken into consideration. However, if something changes, like the firm itself, the majority rule will not be applicable. In these circumstances, the partners’ unanimity is essential.

Right to Access the Books Under Section 12(D)

Every partner of the business, whether an active partner or a sleeping partner, has the right to obtain any of the partnership company’s books. The partner has the authority to examine and, if necessary, obtain a copy of the books of accounts. However, this right must only be appropriately used.

Right to Remuneration Under Section 13(A)

No partner of the organisation has the right to obtain compensation in addition to his share of the company’s profits for participating in the firm’s business. Nevertheless, this norm may occasionally be altered by an express agreement or a course of business, in which situation the partner will be able to receive compensation. Since compensation is due under the firm’s ongoing use, a partner may demand payment even in the absence of an agreement.

Right to Share Profits Under Section 13(B)

Each partner is entitled to an equal share of the company’s profits. In a similar manner, the partnership business’s losses also apply equally. A partner’s share must be determined by asking the other partners if they have reached an agreement on it. In the absence of a contract, it can be assumed that each party will receive an equal portion of the profits, and the party making a claim (that the distribution is unequal) will be responsible for providing evidence to support their claim.

Interest on Capital under Section 13(c) 

According to the partnership deed, if a partner contributes interest on capital, the interest will only be paid out of earnings in that situation. Until there is a written agreement or established usage to the contrary, interest on capital contributed by partners is generally not permissible.

Right to Refuse the Entrance of a New Partner Under Section 31

In a partnership agreement, each partner has the power to forbid the addition of a new partner without the approval of all the other partners.

What Is the Provision of Right to Retire in Partnership?

In a general partnership, each partner has the option to leave the company with the approval of all the existing partners. This can be accomplished in the event of an at-will partnership by notifying each of the other partners in writing.

Right to Not Get Removed Under Section 33

In a partnership business, each partner is entitled to carry on running the company. Unless authorised under a partnership agreement and used in the best interests and for the benefit of the partnership business, a member cannot be expelled from the organisation by any majority of the other partners.

What Is the Provision of the Right to Dissolve the Firm in Partnership?

Right to Dissolve the Firm in Partnership Under Section 40

A partner in a partnership business has the authority to terminate the company with the agreement of all the other partners. Nevertheless, if the partnership is at will, any partner can terminate the company by notifying the other partners in written form of their desire to do so.

What Are the Duties of a Partner in a Partnership Firm?

  1. Duty to act honestly

According to Section 9 of the Act, partners have a responsibility to act in the company’s best interest as a whole. Accordingly, the partner must try to ensure that the company makes the most revenue possible. A partner shouldn’t benefit secretly from the business at the expense of the company.

  1. Duty to compensate for fraud

According to Section 10 of the Indian Partnership Act of 1932, if a partner’s action leads to a loss to the company’s performance, he/she is required to reimburse their fellow partners for that loss.

  1. Duty to Be Diligent

A partner is required by Section 12(b) to fulfil their responsibilities diligently. According to Section 13(f), a person is required to hold the company harmless for any damages resulting from his willful negligence.

  1. Duty to treat the company’s assets with care

According to Section 15 of the Act, the firm shall hold and utilise the Property of the Organisation only in furtherance of the Activities of the Company.

  1. Duty not to compete

According to Section 16(b) of the Act, if a partner generates money running a company that is either in direct competition with the organisation or is identical to it, they must account for those earnings.

Conclusion

The parties in a partnership are able to create an agreement and specify their respective rights and obligations. Since the relationship between partners in a partnership is of good faith and fair dealing, it is the responsibility of each partner to act for the company’s best overall benefit and to put up extra effort to prevent any losses for the company. Visit Vakilsearch and get a more in-depth understanding of the rights and duties of a partner with the help of their experienced legal experts.

Read more: 

  1. Partnership Firm Registration Fees
  2. Partnership Firm Examples

 

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