by In a partnership firm, every partner is both an agent and a principal. Therefore, the rights and duties of partners play a vital role in the proper functioning of the firm. The Partnership Act, 1932 provides both statutory rights and duties, which apply unless otherwise agreed in the partnership deed.
Rights of Partners:
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Right to Take Part in Business (Section 12(a))
Every partner has the right to participate in the conduct of the business. No partner can be excluded from the management without their consent. This ensures equality and promotes joint decision-making, even if capital contributions differ.
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Right to be Consulted (Section 12(c))
Each partner has the right to be consulted on matters affecting the firm, especially major decisions. In case of differences, ordinary matters are decided by majority, while a change in the nature of business requires unanimous consent.
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Right to Access Books and Records (Section 12(d))
Every partner has the right to inspect, copy, and review the books of account and other records of the firm. This promotes transparency and accountability, and protects against misuse of authority or resources by any one partner.
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Right to Share Profits (Section 13(b))
Unless otherwise agreed, all partners are entitled to equal share in profits and losses, regardless of their capital or effort. If agreed, profit-sharing ratios can differ. This right emphasizes fairness and mutual benefit.
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Right to Interest on Capital (Section 13(c))
Partners are not entitled to interest on capital by default. However, if agreed in the partnership deed, they can earn interest on capital at an agreed rate, but only out of profits, not as a fixed charge.
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Right to Interest on Advances (Section 13(d))
If a partner advances money beyond their capital contribution for the firm’s use, they are entitled to interest at 6% per annum, whether or not the firm makes a profit. This promotes fairness in financing.
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Right to Indemnity (Section 13(e))
If a partner incurs expenses or liabilities during the ordinary course of business or in an emergency to protect the firm, they are entitled to be indemnified (reimbursed) by the firm. This protects partners who act in good faith.
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Right to Use Partnership Property
Every partner has the right to use firm’s property exclusively for the firm’s business. No partner can use firm property for personal purposes. If misused, they may have to compensate the firm.
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Right to Retire
Subject to agreement, a partner may retire voluntarily or on the basis of mutual consent. In partnerships at will, a partner can retire by giving notice to the other partners. This right ensures voluntary participation.
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Right Not to Be Expelled
A partner cannot be expelled arbitrarily by other partners. Expulsion must be done in good faith, following terms of the agreement, and with due process. This safeguards against unjust removal.
Duties of Partners:
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Duty to Act in Good Faith (Section 9)
Partners must act with utmost honesty and fairness toward each other. They should not conceal facts, misrepresent the firm’s condition, or act selfishly. This fiduciary duty is essential for trust and teamwork.
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Duty to Carry on Business to Greatest Common Advantage
Every partner must work in the best interest of the firm. They should aim to maximize profits, minimize costs, and avoid personal benefit at the expense of the firm. Selfish conduct is discouraged.
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Duty to Render True Accounts (Section 9)
Partners must keep accurate and honest accounts of all transactions. Any misrepresentation, concealment, or falsification can lead to legal consequences. This duty supports financial transparency.
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Duty to Provide Full Information (Section 9)
Partners are bound to provide complete and accurate information about the firm’s affairs to co-partners. Withholding information may harm the firm’s interest and lead to distrust or conflict.
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Duty to Indemnify for Loss Caused by Fraud (Section 10)
If a partner causes loss to the firm or third parties by fraudulent actions, they must indemnify (compensate) the firm. Fraud by one partner binds the whole firm; thus, this duty prevents malpractice.
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Duty Not to Compete with Firm (Section 16(b))
A partner must not run a rival business. If they do, they must surrender the profits made from such business to the firm. This ensures loyalty and undivided attention to the firm’s success.
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Duty to Account for Personal Profits (Section 16(a))
If a partner earns profits by using the firm’s name, business connections, or property for personal gain, they must return such profits to the firm. Personal enrichment at the cost of the firm is prohibited.
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Duty Not to Transfer Rights Without Consent
A partner cannot transfer their share of partnership or management rights to an outsider without the consent of other partners. This maintains control and integrity within the firm.
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Duty to Attend to Duties Diligently
Partners must give reasonable attention to firm affairs and carry out tasks with diligence and care. Negligence or irresponsibility may cause losses and invite liability.
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Duty to Share Losses (Section 13(b))
In the absence of agreement, all partners must equally share the losses of the firm. Even sleeping or inactive partners are liable to bear the loss, just as they would share in the profits.
