The rights and duties of a Partnership firm in the legal perspective

INDIAN PARTNERSHIP ACT,1932

• The partnership is a specific contract and it used to be a part of the Indian Contract Act,1872.
• In 1930 the provisions relating to partnership contracts were repealed and a separate act called Indian Partnership Act,1932 was passed.
• It came into force on the first day of October 1932, except Sec 69.
• Sec 69 came into force on the force on the first day of October 1933.
• The Indian Partnership Act is not exhaustive. Whenever the act is silent, we can refer to other commercial laws.

SCOPE OF THE ACT:

The Indian Partnership Act, 1932 applies to the whole of India except the state of Jammu & Kashmir.

DEFINITION:

“As per Sec 4 of the Indian Partnership Act, it is the relationship between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.”

LEGAL STATUS OF A PARTNERSHIP FIRM:

A firm is not a separate entity from its partners. It is collected from all its partners.

Factors to be considered while choosing a firm name:

1. Firm names should not be similar or identical to the name of existing firms or trademarks or goodwill of firms engaged in the similar business.
2. A firm name shall not contain the following words: Crown, Emperor, Empress, Imperial, King, Queen, Royal, or words expressing or implying the sanction or approval of the government except when the government agrees writing.

RIGHTS AND DUTIES OF PARTNERS:

The mutual rights and liabilities of partners are as follows:

1. Right to take part in the conduct of the business [Sec12(a)]:

• Every partner has the right to take part in the business of the firm.
• Now suppose this management power of the partner is interfered with and he has been wrongfully precluded from participating therein. Can the court interfere in these circumstances? the answer is in the affirmative.
• The court can, and will, by injunction, restrain other partners from doing so.
• It is to be noted in this connection that a partner who has been wrongfully deprived of the right of participation in the management has also other remedies e.g a suit of dissolution, a suit for accounts without seeking dissolution, etc.
• The above-mentioned provisions of the law will be applicable only if there is no contract to the contrary between partners.

2. Right to be consulted [Sec12(c)]: In important matters decisions should be unanimous. In other matters, it is by the majority.

3.Right to access books [Sec12(d)]: Every partner whether active or sleeping is entitled to have access to any of the books of the firm and to inspect and take out of copy thereof.

4.Right to remuneration [Sec13(a)]:

• • No partner is entitled to receive any remuneration in addition to his in the profits of the firm for taking part in the business of the firm.
  • But this rule can always be varied by an express agreement, or by a course of dealings, in which event partner will be entitled to remuneration.
  • Thus, a partner can claim remuneration even in the absence of a contract, when such remuneration is payable under the continued usage of the firm. In other words, where it is customary to pay remuneration to a partner for conducting the business of the firm he can claim it even in the absence of a contract for the payment of the same.
  • It is not uncommon for partners, in actual practice, to agree that managing will receive over and above his share, salary, or commission for the trouble that he will take while conducting the business of the firm.

5. Right to share profits: Unless agreed, equal share. But an agreement not to share profits at all is not valid in the eyes of law.

6.Right to interest on capital: Generally the partners are not entitled to charge interest on capital contributed by them. The principle underlying this provision of law is with regards to the capital brought by a                partner in the business, he is not a creditor of the firm but an adventurer.

The following elements must be there before a partner can be entitled to interest on money bought by him in the partnership firm:

• • • An express agreement to that effect, or practice of the particular partnership or
    • Any trade custom to that effect

7. Right to interest on advances:

• • • • 6% of advances, even if there are losses.
      • While interest on capital ceases to run on dissolution, the interest on advances keeps running even after dissolution up to the date of payment.

8.The right to get indemnified from the firm, if made in the ordinary course of business, in urgent situations to protect the interest of the firm.

9. Every partner has the right to prevent the introduction of a new partner in the firm without the consent of all the existing partners.

10. Every partner has the right to retire with the consent of all the other partners.

11. A partner cannot be expelled from the firm by any majority of the partners unless conferred by the partnership agreement and exercised in good faith and for the benefit of the firm.

12. An outgoing partner may carry on a business competing with that of the firm and he may advertise such business, but without using the firm name or representing himself as carrying on the business of the                firm or soliciting the customers who were dealing with the firm before he ceased to be a partner.

13.Right of outgoing partner to share subsequent profits:  If accounts are not settled, can claim 6% interest on his unpaid capital or share of profits proportionate to share of assets.

14. A partner has the right to dissolve the partnership with the consent of all the partners.

The mutual duties of the partners in a partnership firm are as follows:

1. Absolute duties: These are the duties that are imposed by law and can’t be subjected to any change by the partners.

• Act in good faith.
• Carry on business for common advantages.
• Render true accounts.
• Provide full information.
• Indemnify the loss caused by fraud.
• Liable jointly & severally.
• No assignment of interest without the consent of others.

2.General duties: These are the duties which are provided by the Partnership Act, but can be subjected to any change by the partners. These duties will apply in the absence of a contract to the contrary.

• Attend diligently.
• Work without remuneration.
• To share losses equally.
• Indemnify the firm for wilful negligence.
• Use the firm’s property exclusively for the firm.
• Account for personal profit arising by transaction / property / business connection / firm’s name.
• Account for profits of company business.
• Act within authority (can act even beyond authority, in case of authority in an emergency).

 

 

Author: prameela,
IFIM Law School, pursuing 1st year BBA-LLB