Mutual Relations of Partners

It is generally believed that since partnership comes into existence by an agreement, the mutual rights and duties of partners will be determined only by the provisions made in the agreement. But this is not the true position. The partnership agreement may not specifically provide for all rights and duties of partners. In that case, the provisions of the Act will become applicable. Then there are certain rights and duties given in the Act (Sections 9 and 10) which cannot be changed by agreement.

They are mandatory and are binding on all the partners. Thus, the mutual right and duties of partners are governed by the partnership agreement as well as the Partnership Act.

Sections 9 to 13 and Sections 16 to 25 of the Partnership Act lay down the majority of rules that govern the mutual rights and duties of partners. As indicated earlier, except sections 9 and 10 which lay down absolute duties of partners, all other provisions given in the Act can be changed by an agreement amongst the partners, let us now discuss the main provisions of the Act governing the mutual rights and duties of partners.

Rights of Partners

Unless otherwise agreed by the partners, every partner has following rights:

i) Right to take part in the conduct of business: Each partner can participate in the conduct and management of the business of the firm.

ii) Right to be consulted: Each partner has the right to express his opinion and be heard in all matters affecting the business of the firm. All decisions will, however, be made by majority with the exception of certain matters like change in the nature of business and reconstitution of the firm.

iii) Right to have access to books: Each partner has the right to inspect and copy any of the books of the firm. But a minor admitted to the benefits of the firm can inspect and copy only the books of account. He cannot claim access to other books of the firm.

iv) Right to share profits equally: Each partner will share the profits of the business of the firm equally.

v) Right to claim interest on capital: Normally, no interest is allowed on the capital contributed by the partners. But, if the partnership agreement provides for the payment of interest on capital, it shall be payable only out of the profits. In other words, if there are losses, the interest on capital will not be allowed.

vi) Right to interest on advances: If partner has advanced some amount as loan to the firm, he will be entitled to interest at a rate agreed upon, and where no rate is decided, at six per cent per annum. Interest on loan will be payable even if there are losses.

vii) Right to be indemnified: A partner has to be indemnified by the firm in respect of all expenses and liabilities incurred by him in the ordinary and proper conduct of business. He will also be entitled to claim reimbursement for all payments made by him in an emergency for protecting the firm from loss provided he acted in a manner as a person of ordinary prudence would have acted in similar circumstances in his own case.

viii) Right to use partnership property: Every partner is, as a rule, a joint owner of the partnership property and is entitled to have held and applied exclusively for the purpose of the business.

ix) Right in emergency: A partner has the right in an emergency to do all such acts as are reasonably necessary for protecting the firm from loss.

x) Right to stop the admission of a new partner: Every partner is entitled to prevent the introduction of a new partner into the firm. As per rules, unless otherwise agreed, no new partner can be admitted without the consent of all the partners,

xi) Right to retire: Each partner has the right to retire from the partnership either as per the terms of the partnership agreement or with the consent of all the partners, or if the partnership is at will by giving notice of his intention to retire.

xii) Right not to be expelled: Every partner has a right to continue in the partnership. He cannot be expelled from partnership by majority of partners unless such power is conferred by partnership agreement and is exercised in good faith and for the benefit of the firm.

xiii) Right to do competing business: Every outgoing partner has a right to carry on a competing business. But, he cannot (i) use the firm’s name (ii) solicit the firm’s customers, or (iii) represent the firm.

xiv) Right to share profits after retirement: Unless otherwise agreed, an outgoing partner has the right to claim a share in the profits of the firm or claim interest @6% per annum on his share in the property of the firm till his account is finally settled. This rule is also applicable in case of the death of a partner.

Duties of Partners

As stated earlier, certain duties are mandatory while others are subject to agreement amongst the partners. These are summarised below.

Mandatory Duties

The partnership is based on mutual trust and confidence. Hence, each partner must act in good faith and carry on the business of the firm for mutual benefit and not for his personal benefit. Section 9 has clearly stated that all partners are bound (i) to carry on the business of the firm to the greatest common advantage, (ii) to be just and faithful to each other, and (iii) to render true accounts and full information of all things affecting the firm to any partner or his legal representative. Similarly, Section 10 lays down that every partner shall indemnify the firm for loss caused to it by his fraud in the conduct of the business of the firm. These duties given in Section 9 and 10 are absolute provisions of the Act and are mandatory. They cannot be changed by an agreement amongst the partners.

Duties Subject to Agreement by Partners

Besides the provisions of Sections 9 and 10, the other duties of partners as provided in the Act are subject to the agreement by partners. They can be changed by partners by making necessary provisions in their agreement. Such duties are:

i) To attend diligently to his duties in the conduct of the business.

ii) To perform partner’s duty without receiving any remuneration for taking part in the conduct of the business.

iii) To contribute equally to the losses sustained by the firm.

iv) To indemnify the firm for any loss suffered by the firm due to wilful neglect in the conduct of the business of the firm.

v) To ensure that the property of the firm is held and used by the partners exclusively for the business of the firm.

vi) To account for and to pay to the firm any private profits derived by the partner from any transactions of the firm or from the use of property or business connections of the firm.

vii) To account for and to pay to the firm all profits made by a partner by carrying on any private business. Normally, there is no restriction on the partner to carry on any business other than and of the firm. But, if the partners have agreed that no partner shall do any business other than that of the firm, he should not carry on any other business, whether competing or not competing with that of the firm, without the consent of other partners.

viii) To act as an agent of the firm for the purposes of the business of the firm.

ix) To act within the scope of actual or apparent authority. In case a partner exceeds his authority and the other partners do not approve of it, he will be liable to other partners for the loss suffered on account of his such acts.

x) Not to assign his rights and interests in the firm to the outsiders without the consent of all other partners.

xi) To be liable jointly with all other partners and also severally for all acts of the firm done while he is a partner. This means that the creditors of the firm can realise their dues from any partner.

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