RIGHTS AND DUTIES OF PARTNERS INTER SE

This article is written by Divyanjali Mishra of 3^rd Semester of Maharashtra National Law University, Aurangabad, an intern under Legal Vidhiya

ABSTRACT

Partnership is one of the business organizations, in which two or more people join together for carrying out a business. In partnership, there are partners which is defined under the Indian Partnership Act, 1932. These partners are inter-dependent and liability sustained by one in the name of the partnership firm is shared by all. In such a situation it becomes important to give certain rights to the partners to build up their confidence. And since every right is backed up by certain duties, each partner in the partnership firm has certain duties to be fulfilled. All such rights and duties have been discussed in this article in length along with the relevant sections involved. It is essential for every partner to know what all are their rights and duties before starting a partnership firm or before entering into any partnership.

Keywords

Partnership, Partners, Indian Partnership Act, Rights of Partners, Duties of Partners.

INTRODUCTION

A partnership is a type of commercial organization in which two or more people come together to conduct business together. It is a better option than a “sole-trade business,” which is run by a single person using their own resources, abilities, and labor. A major firm needing more capital and resources than available to a sole trader cannot be dreamed of in such a form of business organization due to the limited resources of a single person working in the sole-trade business[1]. However, when a group of people work together, they can combine their resources and talents to launch a far bigger company than any one of them could on their own. In a partnership, the burden of loss is split among the different partners.

Since a partnership is the product of a contract, every contract governing a partnership is subject to both the general contract law and the Partnership Act’s requirements, when the latter does not expressly address the problem[2].

WHAT IS PARTNERSHIP?

The term “Partnership” is defined under section 4 of the Indian Partnership Act, 1932[3]. According to the act, partnership is the relation between persons who have agreed to share the profits of a business carried on by all of them acting for all.

Essentials of partnership

• There must be an agreement between the partners; it must be an association of two or more people.
• There needs to be a legitimate commercial endeavor or operation.
• The goal must be to make money and divide it among the partners.
• The agreement must be to carry out the business jointly or by any of them acting on the behalf of all i.e., there must be a mutual agency.

Partnership relationships are derived from contracts, not from standing^[4].

CONCEPT OF PARTNERS

Individuals who have formed a partnership are referred to as “partners,” and the group as “a firm.” The name under which their business is operated is known as the “firm-name.” ^[5].

KINDS OF PARTNERSHIP

Partnerships occur for some purpose or generally. On this basis partnership has been divided and following are the different partnership:

1. Partnership at will: This type of partnership exists when there is no set time limit for when it must end.

According to Indian Partnership Act^[6], following conditions need to be fulfilled:

1. No agreement about the determination of the fixed period of partnership.
2. No clause with respect to the determination of partnership.

2. Partnership for a fixed period: when the partners fixed the duration of the partnership firm then after the expiration of the fixed period the partnership comes to an end[7] and such type of partnership is referred to as a partnership at will.
3. Particular Partnership^[8]: when the partnership is created for completing any project or undertaking. A partnership ends when a project or endeavor of this nature is finished. The partners can decide whether or not to stay with the company.
4. General Partnership: when the partnership is created for the purpose of carrying out the business. There is no particular task that has to be completed. The task is general in nature.

DUTIES OF PARTNERS IN A PARTNERSHIP FIRM

In a partnership firm, it is a requirement for partners to conduct the firm’s business to maximize mutual benefit and to be fair and dependable to one another. In a Partnership firm in India, partners have various other duties and responsibilities that they have to fulfil. These duties are essential for maintaining trust and fairness among partners and ensuring the smooth operation of the partnership business in India[9]. Some of the duties are the integral part of the partnership contract but some duties can be modified through the contract. Some of those duties are as follows:

1. Duty to Act in good Faith.

Partners are obligated to act in good faith towards each other and must conduct the business for the mutual benefit of all partners. Their duty is to carry out the business of the firm to greatest common advantage^[10].

2. Duty of Loyalty^[11].

Partners should be loyal and honest to each other and the partnership. They must not engage in any activity that conflicts with the interest of the partnership. These partners must be just and faithful to each other. They must also render true accounts and full information of all things affecting the firm to any partner, his heir or legal representative.

3. Duty to Contribute^[12].

Each partner must contribute capital as agreed upon in the partnership agreement and must also contribute their skills, knowledge, and efforts towards the success of the business. The partners are entitled to share equally in the profits earned, and shall contribute equally to the losses sustained by the firm.

4. Duty of Care and Skill^[13].

Partners are expected to perform their responsibilities with reasonable care and skill. They should use their best abilities and judgement in conducting partnership affairs. They have the duty to diligently perform the various conducts of the business. Partners must also maintain the confidentiality of the partnership’s trade secrets, business strategies, and sensitive information.

5. Duty to Provide Information.

Partners are required to share information related to the partnership’s business and financial matters with each other^[14].

6. Duty to indemnify for loss caused by Fraud.

Every partner shall indemnify the firm for any loss caused to it by his fraud or willful neglect^[15] in the conduct of the business of the firm^[16].

7. Duty not to carry on any business other than that of the firm.

While the person is partner to the firm, agreements can be made that can bind the person in the duty not to carry on any business other than that of the firm under section 11 of the Indian Partnership Act.

8. Duties during emergency situation^[17].

The firm has the duty to indemnify a partner in respect of payments made and liabilities incurred by him in doing such act, in an emergency, for the purpose of protecting the firm from loss[18]. Such conduct would have been done by any person of ordinary prudence in his own case under similar circumstances.

9. Duty to pay the personal profits obtained using firm’s property.

If the partners derive any profits for himself from any transaction of the firm or using firm’s personal property, then the partner has the duty to give account of the profits and pay it to the firm^[19].

RIGHTS OF PARTNERS IN PARTNERSHIP FIRM.

In a partnership firm, partners have various rights in their hand. It is essential for partners to have a clear understanding of their rights and obligations within the partnership. While the Indian Partnership Act provides a framework, the specific rights can be further defined and altered as per the partnership agreement. It is advisable for partners to have a well-drafted partnership agreement that outlines these rights, responsibilities, profit-sharing ratios, decision-making processes, etc., to avoid misunderstandings and conflicts in the future. Following are the rights that are granted to the partners in a partnership firm[20]:

1. Right to share profits and losses.

Partners have the right to share profits of the business as per the terms agreed upon in the partnership deed. Similarly, they also share losses incurred by the partnership agreement^[21].

2. Right to participate in management.

Each partner typically has the right to participate in the management and operation of the partnership business, unless otherwise specified in the partnership agreement. They have the right to take part in the conduct of the business^[22].

3. Right to information and access.

Partners have the right to access and inspect the books, records, and other relevant documents of the partnership. Under section 12d of the Indian Partnership Act, 1932, each partner has a right to have access to and to inspect and copy any of the books of the firm.

4. Right to Express opinions.

Partners have the right to express their opinions before any matter is decided. No change has to be made in the nature of the business without the consent of all the partners. Any difference arising as to ordinary matters connected with the business may be decided by a majority of the partners[23].

5. Rights to be indemnified.

Partners have the right to be indemnified by the partnership for any liabilities or expenses incurred while conducting partnership business within the scope of their authority.

6. Right to share in assets upon dissolution.

When a partnership firm is dissolved, the assets of the firm have to be divided among the partners according to their share. They have the right to share the remaining assets after settling all liabilities and obligations and the same is given under section 46 of the Indian Partnership Act, 1932.

CONCLUSION

Partnership firm is formed for a number of matters. What an individual can’t do in his individual capacity, that can be done through partnership. A partnership firm enables the partners to carry on a business effectively, with less monetary load. However, just like every other business comes with profits and liabilities, in partnership too partners have certain rights and obligations to fulfil towards each other and towards the partnership firm too. There are certain rights and duties of the partners inter se. The duty to work effectively, diligently and for the maximum benefit of the firm, duty to render the accounts of the firm efficiently, duty to indemnify the firm for the loss caused to it, duty to pay the extra sums earned using firms’ assets, duty to act diligently during an emergency ensuring maximum benefit for all the partners in the firm. These duties directly indirectly affect other partner’s share and hence these duties are the duties inter se of the partners. Along with the duties partners have various rights in capacity of being partner in the firm inter se. Right to share of profits of the firm, right to go through the accounts, check books and other books of the firm, right to participate in the dealings of the firm and give their opinion regarding any matter of the firm, right to vote, right to be indemnified by other partners for the task done in the capacity of being partner of the firm, right to information and access, right to share in assets upon dissolution, these rights directly- indirectly affect partnership and decides the liabilities and profits of partners. These rights against each other and the firm, builds up confidence in the partners and enables smooth functioning of the firm. In the absence of such rights there would have been apprehension of distrust and partners would not have worked diligently. Hence, such rights and duties become empirical for a partnership firms’ success and enables the overall effective functioning of the firm.

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[1] Ayushi Saraswat, Rights and duties of partners under the Indian Partnership Act, (Last visited 25 Dec. 2023), https://lawbhoomi.com/rights-and-duties-of-partners-under-indian-partnership-act/.

[2] Indian Law Society’s Law College, Rights of Partners,https://www.studocu.com/in/document/indian-law-societys-law-college/company-law/rights-of-partners/10267959

[3] Kumaraswamy v. Shivaprasad | Karnataka High Court, (last visited 25 Dec. 2023), https://www.casemine.com/judgement/in/6416b35b378c563dad8aa8af.

^[4] Indian Partnership Act, 1932, sec. 5.

^[5] Kumaraswamy v. Shivprasad.

^[6] Indian Partnership Act, 1932, sec. 7.

[7] Lexpeeps, Rights and Duties of Partners Inter Se, (last visited 25 Dec. 2023) https://lexpeeps.in/rights-and-duties-of-partners-inter-se/.

^[8] Indian Partnership Act, 1932, sec. 8.

[9] KalyanGinka, Rights and Duties of Partners Inter Se under Indian Partnership Act, 1932,https://www.legalserviceindia.com/legal/article-4633-rights-and-duties-of-partners-inter-se-under-indian-partnership-act-1932.html

^[10] Indian Partnership Act, 1932, sec. 9.

^[11] Ibid.

^[12] Indian Partnership Act, 1932, sec. 13.

^[13] Indian Partnership Act, 1932, sec. 12b.

^[14] Indian partnership Act, 1932, sec. 9.

^[15] Indian partnership Act, 1932, sec 13f.

^[16] Indian Partnership Act, 1932, sec. 10, https://www.studocu.com/in/document/nirma-university-of-science-and-technology/constitutional-law/19bbl110-.

^[17] Indian Partnership Act, 1932, sec. 13(e)(ii).

[18] The Partnership Act, 1932 | 12. The conduct of the business, http://bdlaws.minlaw.gov.bd/act-157/section-5525.html.

^[19] Indian Partnership Act, 1932, sec 16.

[20] Rights and Duties of Partners inter se, https://legalpaathshala.com/rights-and-duties-of-partners-inter-se/.

^[21] Indian Partnership Act, 1932, sec. 13.

^[22] Indian Partnership Act, 1932, sec. 12a.

[23] BUSINESS LAWS – dokumen.pub, https://dokumen.pub/download/tulsians-business-law-for-ca-foundation-3rd-edition-3nbsped-9789353163150.html.

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