Rights and Liabilities of Partners in a Partnership Firm

The partnership is a unique type of contract and is governed by the Indian Partnership Act, 1932.  Section 4 of the Indian Partnership Act, 1932 states that “ ‘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. Persons who have entered into a partnership with one another are called individually, ‘partners’ and collectively ‘a firm’, and the name under which their business is carried on is called the ‘firm name’.”[1]

Rights of Partners In Partnership Firm-

1. Right to take part in the conduct of the business [Section 12(a)]: Every partner of the partnership firm has the right to participate in the conduct of its business. In some cases, certain partners would just invest money in the business and let other partners take control of the conduct of the business. In any case, it does not imply that the partner is waiving their right to participate in the conduct of the business and that he will not be able to take part in it at a later stage. It is important that all partners have the right to participate in the conduct of business himself, regardless of the fact that the right is duly exercised or not.

2. Right to express opinion[Section 12(c)]: Partners are bestowed upon with this right to voice any disagreement on an issue related to business so as to obtain a consensus of all partners. Since it’s a partnership firm, all members have an equal right and therefore no unilateral decision can be taken. It is pertinent for such right to be in place for the conduct of a smooth business since those decisions impact the profitability of the business. Therefore, an agreement of all partners in all such crucial decisions is imperative.

3. Rights to access accounts[Section 12(d)]: Every partner has the right to have access, inspect, and a copy of any of the books of the firm. This right is in place so that all partners remain answerable to each other in any event of trouble.

4. Right to share in profits[ Section 13(b)]: Every partner in the firm is entitled to receive a share in the profit of the firm. It does not have to be equally divided, different proportions can be specified when signing the partnership deed and can be altered with a new contract.

5. Interest on capital [Section 13(c)]: Any partner who invests capital in the firm, does not have the right to earn interest on it. But if the agreement states so, the interest becomes payable only out of the profits of the firm.

6. Right to interest on additional capital or loan [Section 13(d)]: In a case where a partner invests more than his share in the capital or has given some money as a loan to the firm at the rate specified in the agreement, then he has a right to get interested on the same. Alternatively, if no interest rate has been agreed upon, the partner can receive the same at the rate of 6%.

7. Right to indemnity [Section 13(e)]: A partner, if a case of emergency arises with the intent to protect the firm from any loss, acts as a prudent person with the normal degree of intelligence would do to protect the firm, incurs an expense or an obligation upon such activities, has the right to be indemnified by the firm for the said act.

8. Right in the firm’s property: Every partner is a joint owner of the firm’s property unless an agreement has been drafted stating the contrary, it will be presumed each partner has an equal share in the firm. The property of the firm includes all property bought from the firm’s money and used exclusively for the firm’s conduct of business.

9. Right to leave the firm: Each partner has a right to leave the firm after receiving consent from the other partners. If a partnership is at will, mere notice of intention is to be given and the partner can leave the firm.

10. Right not to be expelled: Each partner can continue to be in the partnership and cannot be expelled at will by the consensus of other partners unless he is facing a charge of having committed a breach of his duty of good faith.

11. Right to do competitive business: In exclusion to the circumstances listed in Section 36(1) of the Act, an outgoing partner maintains the right to conduct a competing business.

12. Right to share in profits after retirement: In an outgoing’s partner’s account, if the firm owes him money or in an instance is using its assets for the conduct of the business, then the outgoing partner or his/her legal representative is entitled to earn profit in proportion to his shares, in aid of use of such assets or at the interest rate of 6%.

Liabilities of Partners In Partnership Firm-

1. Liability of partners for the acts of the firm [Section 25]: All partners will be held ‘jointly and severally liable’ for any acts of the firm. The liability will only arise if such acts were done in pursuance of him acting as a partner of the firm.

2. Liability of the firm for the wrongful act of partner [Section 26]: In a case of any wrongful act or omission to do an act by any of the partners in the conduct of the ordinary course of the business or with the consensus of other partners, the firm will be held liable to the same extent as a partner would have been held liable.

3. Liability of a firm for the misapplications by partner [Section 27]: In a case where a partner receives a sum of money from a third party and misuses it or the firm receives the said amount and the amount is misappropriated by any of the partners, then in this event, the firm will be held liable to pay for the consequential loss suffered.

[1]Section 4, Indian Partnership Act, 1932.

This Article Written by Vidhi Udayshankar, 3rd  Year, BA LLB (Hons) Student of Amity Law School, Delhi (GGSIPU).

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