Q.4 Explain the duties, rights and liabilities of each partner?
Ans: The fundamental duties of partners are contained in Section 9, which reads:
“Every partner is bound to carry on the business of the firm to the greatest common advantage, to be just and faithful to the other partners, to render true accounts and full information of all things affecting the firm to any partner on his legal representative and to indemnify the firm for any loss caused to it by his fraud in the conduct of the business of the firm”
According to the Partnership Act, 1932 following are the important duties of the partner:
1. TO WORK FOR THE GREATEST COMMON ADVANTAGES
Every partner is bound to carry on the business of the firm to the greatest common advantages.
2. TO BE JUST AND FAITHFUL
Every partner must be just and faithful to the other partners.
3. TO RENDER TRUE ACCOUNTS
A partner is bound to keep and render true, proper and correct accounts 6f the partnership. He must permit the other partners to inspect such accounts and to take copies of them.
4. TO GIVE FULL INFORMATION
Every partner is an agent of the other partners and as such is bound to communicate full information to them.
5. TO INDEMNIFY FOR FRAUD
Every partner is bound to indemnify the firm for any loss caused by his fraud in the conduct of business.-The liability of a partner is absolute and no partner can contract himself out of it. If a partner commits a fraud on his co-partners, he must indemnify them for any loss caused to them by his fraud.
6. TO INDEMNIFY FOR WILFUL NEGLECT
Every partner who is guilty of willful neglect in the conduct of the business and the firm suffers.
7. TO SHARE LOSSES
As in the case of profits, in the absence of an agreement to the contrary, every partner is bound to share the losses equally with the other- If there is an agreement, then in the proportion as the agreement provides.
8. TO A TTEND DILIGENTLY Y WITHOUT REMUNERATION
Every partner is bound to attend diligently to the business of the firm and, in the Absence of any agreement to the contrary, he is not entitled to any remuneration whether in the shape of salary, commission or otherwise, on account of his own trouble in conducting the partnership business.
9. THE HOLD AND USE PROPERTY FOR THE FIRM
In the absence of an agreement to the contrary, every partner is bound to hold and use the partnership property exclusively for the firm.
10. TO ACCOUNT FOR PRIVATE PROFITS
A partner, like a trustee, cannot make private gain by reason of his membership with the firm. Thus, where a partner in the course of the business has received information and uses it for any purpose competing with the partnership business, he must pay over any benefit that he may have obtained by the use of such information.
11. TO ACCOUNT FOR PROFITS OF COMPETING BUSINESS
If a partner, without obtained the consent of the other partners, carries on a competing business, he must account for the profits of such business to the firm, and must also compensate the firm for any loss sustained by his carrying on such competing business. Not only during the continuance of the firm, but also after dissolution of the firm, and during the winding up, a partner may be prohibited and can be restrained from carrying on a competing business in the name of the firm or using the property of the firm.
12. TO ACT WITHIN AUTHORITY
Every partner is bound to act within the scope of the actual authority conferred upon him. Where he exceeds his authority, he shall have to compensate the other partners for any ensuing loss, unless they ratify his act.
13. NOT TO ASSIGN HIS RIGHTS
No partner can assign or transfer his partnership interest to any other person, so as to make him a partner in the business.
RIGHTS OF A PARTNER
The following are the rights of partners according to the partnership act 1932:
1. RIGHT TO TAKE PART IN MANAGEMENT
Every partner has a right to take part in the conduct and management of the business. It may be pointed out again that this rule, like most of the following rule subject to any contract to the contrary*between the partners and applies only when no agreement regarding conduct of business exists.
2. RIGHT TO BE CONSULTED
Every partner has a right to be consulted and heard in all matters affecting the business of the partnership/ Where there is a difference of opinion between the partners, the decision of the majority of the partners will prevail but only in ordinary matters of routine, and that too if the majority has acted in perfect good faith and as far as possible every partner has been consulted.
3. RIGHT OF ACCESS TO ACCOUNT
Every partner, active or dormant, has a right to free access to all records* books and accounts of the, business and also to examine and copy them. But a minor admitted to the benefits of the partnership has only a right of access to “accounts” and inspect .and copy them, but not to “books.”
4. RIGHT TO SHARE PROFIT
Every partner is entitled to share in the profits equally, unless different proportions are stipulated. There is no connection between the proportion of capital contributed by the partners and the share in the profits earned, nor will fact that the work done by the partners is unequal affect the question of their shares.
5. INTEREST ON CAPITAL
No partner is entitled to interest on the capital subscribed by him unless there is an agreement express or implied or a trade custom to that effect. Again, interest which is allowed by agreement or trade custom, is payable only out of the profits, if any, unless agreed to be paid even in the absence of profits, further, were interest is payable on capital it stops running at the date of dissolution, unless otherwise agreed.
6. INTEREST ON ADVANCES
A partner who has contributed more than the share of the capital for the purposes of business is entitled to interest at a rate agreed upon, and where no rate is stipulated for, at six per cent per annum. This interest is payable out of the partnership properly as an item of expense, and not necessarily out of the profits. A partner is not entitled to any interest on undrawn profits left in the business, unless there is an agreement express or implied to that effect.”
7. RIGHT TO INDEMNITY
A partner is entitled, in the absence of an agreement to the contrary, to be indemnified by the firm for all acts done by him in the course of the partnership business, for all payments made by him in respect of partnership debts or liabilities and expenses and disbursements made in an emergency for protecting the firm from loss, provided he acted as a person of ordinary prudence would have acted in similar circumstances.
8. JOINT OWNER OF PARTNERSHIP PROPERTY
Every partner is, as a rule, a joint owner of the partnership property, and in the absence of an agreement providing for the interest of each partner in the property every partner is presumed to have an equal share in it. Every partner is entitled to have the partnership property used exclusively for the purposes of the partnership.
9. POWERS IN AN EMERGENCY
A partner has power to act in an emergency for protecting the firm from loss. But in doing so, he must act as a prudent person would act in his own affairs in similar circumstances. A partner’s right to be indemnified by his co-partner for payments made or liabilities incurred in acting for the firm in an emergency is co-extensive with his authority.
10. NO NEW PARTNER TO BE INTRODUCED
Every partner is entitled to prevent the introduction of a new partner into the firm without his consent, unless there is an express contract permitting such’ introduction.
11. NO LIABILITY BEFORE JOINING
An incoming partner will not be liable for any debts or liabilities of the firm before he became a partner, excepting by his own consent.
12. RIGHT TO RETIRE
Every partner has a right to retire, if the contract so provides, failing which, with the consent of other partners, and if the partnership be one at will, at any time on giving notice 10 the other partner.
Every partner has a right to continue in the partnership and not to be expelled from it, excepting when there is a clause in the agreement conferring a power of explosion by majority or any particular partners. But a power of expulsion, where it exists, must be exercised bona fide, and in good faith and not with any ulterior motive of getting an advantage, e.g., purchasing his interest in the firm at a favourable rate.
14. RIGHT TO CARRY ON COMPETING BUSINESS
Every out going partner has a right to carry on a competing business, but, without using the firm name or soliciting the firm’s customers or in any way representing himself as carrying on the business of the firm, unless he has been restrained by a reasonable agreement from carrying on a similar business for a specified period of time within specified local limits.
15. RIGHT AFTER RETIREMENT TO SHARE IN PROFITS OR INTEREST
Partners carry on the business with the property of the firm without any final settlement of accounts, viz., without the share of the assets of the outgoing partner being paid over, or without his interest being purchased by the remaining partners, the estate of such deceased partner or the partner himself, as the case may be, is entitled to share in the profit earned with the aid, of the assets of such outgoing partner, or interest at six per cent per annum at the option of the legal representative of the deceased partner or the outgoing partners. The rule applies to the case of an alien enemy where partnership is dissolved on the outbreak of war, the alien enemy in such case has a right to claim share of the profits or interest can be exercised only when the accounts of the subsequent business are made. And, as the right is an alternative one, a claim both for share of the subsequent profits as well as interest will not be allowed.. Further, once the election hits been made, the party will not be allowed to go back on it nor will he be permitted to claim profits for part of the period and interest for remaining period.
LIABILITIES OF PARTNERS
The following are the Liabilities of partners according to the partnership act 1932
1. LOSS LIABILITY
If there is no agreement the loss will equally contribute to each partner
2. LIABILITY OP ALL ACTION
All the partners of the firm are jointly responsible for all the action done by the firm.
3. LIABILITY OP NEW PARTNER
A new partner cannot be held responsible for the loss or the share of profit before his date of admission or a new partner is liable all the acts <|t the firm after he becomes a partner.
4. LIABILITY OP INSOL VENT PARTNER
The firm is not liable for any obligations for the insolvent partner after the date on which the order of insolvent’ by court is made.
5. LIABILITY OP DECEASED PARTNER
The property of the deceased partner is riot liable for any obligation of the firm after his death.
6. LIABILITY OP FRAUD
Ever partner is bound to be liable for all wrongful acts.
7. LIABILITY OF RETIRED PARTNER
A partner who retired will not be responsible for any act of the firm after the date of his settlement. However, he is liable for the debates of the firm incurred before the date of his retirement.
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