Rights and Duties of Partners in Limited Liability Partnership (LLP)

Under the Limited Liability Partnership Act, 2008, the rights and duties of partners are mainly governed by the LLP Agreement. In the absence of an agreement, the provisions of Schedule I of the LLP Act apply. These rights and duties ensure smooth functioning, accountability, and fairness among partners.

Rights of Partners in Limited Liability Partnership (LLP)

• Right to Participate in Management

Every partner of an LLP has the right to participate in the management of the LLP unless otherwise agreed. Partners can take part in decision-making, policy formulation, and day-to-day operations. This right ensures democratic functioning and collective responsibility. Unlike companies, LLPs allow partners to directly manage business affairs. However, the LLP Agreement may assign managerial powers to specific partners. This right promotes transparency, involvement, and shared control among partners.

• Right to Share Profits

Partners have the right to share profits of the LLP in accordance with the LLP Agreement. If no agreement exists, profits are shared equally among partners as per Schedule I. This right is fundamental, as profit-sharing is the primary motive for forming an LLP. It ensures fairness and rewards partners for their investment and efforts. Profit-sharing terms must be clear to avoid disputes and misunderstandings.

• Right to Access Books of Accounts

Every partner has the right to inspect and access the books of accounts and other records of the LLP. This promotes transparency and accountability. Partners can verify financial transactions, expenses, income, and compliance status. Access to records helps partners protect their interests and ensures that business is conducted honestly. Restricting access may lead to mistrust and legal disputes.

• Right to Be Indemnified

A partner has the right to be indemnified by the LLP for acts done in the ordinary course of business. If a partner incurs expenses or liabilities while performing authorized duties, the LLP must compensate him. This protects partners from personal loss when acting lawfully on behalf of the LLP. However, indemnity is not available for fraudulent or unauthorized acts.

• Right to Act as Agent of LLP

Every partner is an agent of the LLP, but not of other partners. This means a partner can bind the LLP through authorized actions. This right enables partners to enter into contracts and conduct business transactions on behalf of the LLP. It also limits liability, as partners are not responsible for each other’s acts unless authorized.

• Right to Receive Remuneration

A partner has the right to receive remuneration for services rendered to the LLP if provided in the LLP Agreement. In the absence of agreement, no partner is entitled to salary or remuneration. This right encourages active participation and rewards managerial or professional contributions of partners.

• Right to Information

Partners have the right to receive true and complete information about the business affairs of the LLP. This includes financial position, contracts, legal matters, and operational activities. Full disclosure builds trust and helps partners make informed decisions. Suppression of information violates this right and may attract legal consequences.

• Right to Admit New Partners (With Consent)

Partners have the right to admit new partners only with the consent of existing partners, unless otherwise agreed. This right ensures that partners retain control over ownership and management. Admission of new partners affects profit-sharing and decision-making, so mutual consent is essential.

• Right to Retire

A partner has the right to retire from the LLP as per the LLP Agreement or by giving notice in writing. Retirement allows a partner to exit the LLP without dissolving it. This right provides flexibility and personal freedom while maintaining continuity of the LLP.

• Right to Legal Protection

Partners enjoy the right to limited liability, meaning they are not personally liable for the acts of other partners. This legal protection safeguards personal assets and encourages entrepreneurship. It is one of the biggest advantages of LLP over traditional partnership firms.

Duties of Partners in Limited Liability Partnership (LLP)

• Duty to Act in Good Faith

Every partner of an LLP has a duty to act honestly, fairly, and in good faith towards the LLP and other partners. A partner must always place the interest of the LLP above personal interest. Any act done with dishonest intention, bad faith, or personal gain at the cost of the LLP amounts to breach of duty. This duty ensures mutual trust and ethical conduct among partners and promotes long-term stability of the LLP.

• Duty to Act Within Authority

Partners must act within the powers and authority granted by the LLP Agreement. Any act done beyond authority may not bind the LLP and can make the partner personally liable. This duty prevents misuse of power and protects the LLP from unauthorized commitments. Partners should strictly follow agreed rules, resolutions, and decisions to maintain discipline and legal control.

• Duty to Share Losses

Partners are under a duty to share the losses of the LLP in accordance with the LLP Agreement. In the absence of an agreement, losses are shared equally among partners. Sharing losses reflects mutual responsibility and risk-sharing, which is the foundation of partnership. This duty ensures fairness and financial balance among partners during difficult business periods.

• Duty to Maintain Confidentiality

A partner must maintain secrecy of confidential information related to the LLP. Business strategies, client details, financial data, and trade secrets must not be disclosed to outsiders without consent. Disclosure of confidential information may harm the LLP’s reputation and competitive position. This duty protects business interests and strengthens trust between partners.

• Duty to Account for Personal Profits

If a partner earns any personal profit by using the LLP’s property, name, or business connection, he must account for such profit and pay it to the LLP. This duty prevents misuse of LLP resources and ensures honesty. Partners should not exploit LLP opportunities for personal benefit without consent of other partners.

• Duty to Indemnify LLP for Fraud

A partner has a duty to indemnify the LLP for losses caused due to fraud or wrongful acts committed by him. Limited liability does not protect partners in cases of fraud. If a partner intentionally causes damage, he is personally liable. This duty promotes integrity, responsibility, and lawful conduct in business operations.

• Duty to Contribute Capital

Partners must contribute capital as agreed in the LLP Agreement. Capital contribution is essential for meeting business expenses and growth. Failure to contribute capital may disturb financial stability and operational efficiency of the LLP. This duty ensures adequate funds and smooth functioning of business activities.

• Duty to Comply with LLP Act, 2008

Partners have a duty to ensure compliance with the provisions of the LLP Act, 2008, including filing annual returns, statements of accounts, and other statutory documents. Non-compliance attracts penalties and legal consequences. This duty ensures lawful existence and credibility of the LLP.

• Duty to Attend Meetings and Participate

Partners must actively participate in meetings and decision-making processes of the LLP. Neglecting responsibilities or remaining inactive can affect business performance. Active participation helps in better governance, problem-solving, and growth of the LLP. This duty promotes collective responsibility and effective management.

• Duty to Avoid Conflict of Interest

Partners must avoid conflicts of interest and should not engage in competing businesses without consent of other partners. A partner must not act in a manner that harms the LLP’s interest. Loyalty to the LLP is essential. This duty ensures fairness, transparency, and mutual confidence among partners.