Rights And Duties Of Partners
The basic aim of this research article is to understand the rights and duties of partners in a partnership business and to know the laws through which they are governed and related statutes as well.
Now it becomes crucial to first understand the concept of partnership to understand the obligations and rights of a partner.
[A partnership is a relationship between the persons who have agreed to share the profits and losses of a business carried on by all the partners or any of them acting for all]1.
Introduction :
A partnership is one of how business can be carried out where two or more persons join together to create and run the partnership business.
The persons who have entered into a partnership with one another are called individually ‘partners’ and collectively a ‘firm’.
The law relating to partnership in India is contained in the Indian partnership act, 1932 which is concerned partly with the rights and duties of partners between themselves and partly.
A partnership company usually has an agreement that includes each partner’s duties and rights however, in the absence of a contract there are laws that the partners need to follow to be legally correct.
Another fundamental of a partnership is that partners’ relationships with one another must be in the utmost good faith.
- Section 4, Indian Partnership Act, 1932
Background :
The Indian Partnership Act 1932 was passed by the legislation and received its assent on 8th April 1932 and came into force on 1st October 1932. The principles of the partnership were first contained in chapter 11 (sections 239 to 266) of the Indian Contract Act, of 1872.
With the development of the economy, trade, and commerce in India it was felt that these sections were not sufficient and hence a need for a separate partnership act was felt.
Thus, the Indian Partnership Act came up and sections under the Indian Contract Act containing partnership laws were repealed. the present partnership act is based on the English Partnership Act, 1890 with required modifications.
Besides the Indian Partnership Act 1932 partnership laws in India are also governed by the Limited Liability Partnership Act,2008 which is concerned with limited liability partnerships.
In an LLP the partners have limited liability. There is no overlapping between the provisions of these two statutes.
The Limited Liability Act allows Indian businesses to combine professional expertise with new ideas and entrepreneurial initiatives and renders support for them to operate efficiently and innovatively.
An LLP allows its members to undertake limited liabilities while structuring their company as a partnership.
Rights and duties of partners :
Partners can determine their mutual rights and duties by a contract called a partnership deed which deals with aspects of general administration such as, which partner will do what work, and what will be their share in profits, it may be made or varied by express or implied consent of all the partners.
section 11 provides that subject to the provisions of the Indian Partnership Act, partners can use this agreement to prohibit each other from carrying on any business other than that of the firm.
Now let us look at the duties and rights of partners as per this Act –
Duties of partners :
Duty to act honestly and render true accounts (section 9) –
partners are bound to carry on the business of the firm to the greatest mutual profits and to be true and faithful to each other.
The partners must try to ensure that the business makes the most revenue possible. partners also must render true accounts and full information of all things which may affect the firm, to any partner or his heir or legal representative.
Duty to indemnify for the loss caused by fraud (section 10) –
if a partner’s action leads to a loss to the company’s performance, then they must reimburse their partners for that loss.
Duty to be diligent ( section 12 b) –
A partner is required by section 12 (b) to fulfill their responsibilities diligently.
according to section 13(f), a person must hold the company harmless for any damages resulting from his wilful negligence.
Proper use of the partnership firm’s property ( section 15) –
Subject to the contract between the partners the property of the firm shall be held and used by the partners exclusively for the business.
Duty not to compete (section 16) –
If a partner derives any profits for himself from any transaction of the form or the use of the property or business connection of the firm or the firm name, he shall account for that profit and pay to the firm.
Rights of the partners:
Right to participate in the operation of the business (section 12 a ) –
As a partnership firm is a corporation of the partners and their management abilities are typically coextensive, all the partners of a partnership business have the right to participate in the business conducted by the company.
Right to consult ( 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 the approval of all the partners.
Right to access the books (section 12)
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 claim remuneration, profits, and interest on capital (section 13 a to 13 d) –
A partner is not entitled to receive remuneration for taking part in the conduct of the business.
A partner making, for business, any payment or advance beyond the amount of capital he has agreed to subscribe, is entitled to interest thereon at the rate of 6% per annum.
Right to be indemnified (section 13 e ) –
The firm shall indemnify the partner in respect of the payments made and liabilities incurred by him.
Right to dissolve the firm in partnership (sections 40 and 43) –
A partner in a partnership business has the authority to terminate the company with the agreement.
Conclusion:
In conclusion, after research, I found that partnership is essential in the 21st century due to its several advantages, easy formation, registration not compulsory, larger financial resources, greater management, more credit standing, better and quicker business decisions, sharing of risk, flexibility, easy dissolution, etc.
in addition to this, the statutes for its smooth working elaborately provided in India in the form of the Indian Partnership Act, 1932, and the Limited Liability Partnership Act, 2008.
However, the rights, duties, and liabilities of the partners in the firm are determined by the partners and functions to be undertaken by the partners.
if there is any change in the constitution of the firm or if the partnership continues after the expiry of the term.
Since business transactions play an important role in the development of every country, this type of business is started for the encouragement of business because a single person can’t bear a high capital business, so in India there are provisions for partnership business with suitable law and also developing and amending its laws regarding partnership.
for instance, the LLP Act 2008 is a revolutionary act that started by limiting the liabilities of partners. In this partnership, their liability is restricted to the amount they agreed to contribute or to undertake. The LLP Act has been amended in the years 2021 and 2022.
The 2021 amendment is focused on establishing special courts, penalties, fees, startups, compounding offenses, etc. and the 2022 amendment has the main objective of improving the ease of doing business in the country.
The rights and duties of partners provided under the Indian Partnership Act, of 1932 have also been elaborately discussed in this article.
Written By:-
Vishakha Dubey
