According to sections 9 to 17 of Indian Partnership Act, 1932 partners involved in business have mutual rights & obligations. This controls the mutual relationship of the partners. It can be much understood by a pre-existing contract among the parties during the course of business. Upon the approval of the parties involved the agreement can change.
But Firstly lets understand “What is a Partnership Firm?”
What is a Partnership Firm?
The individuals who have formed a business could refer to Partnership or Partnership firm. Individual involved are called ‘partners’ and the business is known as ‘partnership firm’. This relation acts a single legal entity and does not form separate legal entities between the ‘partners’. They do not form a separate legal entity of their own.
Rights of Partners in a Partnership Firm
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Active participation in the business Activity
Every partner has the right to engage in the due course of management of the business. As given in the clauses of the partnership firm registration document.
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Profit-Sharing
The partners also have the fundamental right to profit sharing and it is important to keep in mind that the partners also share the losses. The profit & loss sharing ratio should be shared as mentioned in the partnership agreement or equally between the partners. The partnership clause should mention this ratio or percentage as it helps in the smooth running of the business.
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Account Books verification
All the partners involved can verify the Account and Bookkeeping. They can view, inspect and verify all the firm’s books of accounts and financial statements. This includes balance sheet, trial balance and Profit and loss account.
The Partners have the right to examine, inspect and have a copy of the books of account. Incase of a deceased partner their legal representative, legal heirs or any other lawfully authorized agent have the same rights.
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Remuneration rights of Partners
Doing business results in the sharing of profit or sustaining losses. The partners in a firm have the right to receive a distribution of profit as outlined in the partnership deed. However, this rule can be overridden by an agreement that specifies the compensation for a partner. Therefore, a partner can make a claim for any income that is due to their involvement in the partnership firm, even in the absence of a contract.
In some cases, the partners could agree that a managing partner will receive more in terms of salary, share, or commission for the effort and time he has devoted to the firm’s operation.
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Interest on Advances
The partnership entitles the partner, who makes an advance other than their capital contribution, to receive interest at a rate of 6% per year on the advance amount. Additionally, while the interest on capital accounts ceases upon dissolution, the interest on the advance continues to accrue until the amount is paid.
Its noteworthy that the Partnership act differentiates between a partner’s advance to the firm and the capital contribution of the partner. The Advance is treated as loan that is top be repaid with Interest.
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Right to be compensated
The firm must pay back all the partners for any payments made and liabilities incurred in the usual and legitimate conduct of the partnership business. This also includes acting in an emergency to save the company from a loss, liabilities and actions which could be those that a prudent man would do in the same situation.
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Right to future Profit for Ceased/Deceased partner
In, case a partner dies or ceases to be a partner & the remaining partners carry the business without settling the outgoing partner’s account the outgoing partner or his estate has the right in such share of profit made since he ceased to be a partner as may be attributable to the use of his share of the firm’s property.
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Right to dissolve the company
If all the partners approve a partner to have the authority to dissolve the partnership. However if the partnership is at will any partner can terminate the partnership firm by giving a written notice to all the other partners to dissolve the firm.
Duties of a Partners in a Partnership Firm
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Performing duties diligently
Acc. to the section 12(b) of the Indian Partnership Act, 1932. Section 13(a) specifies that a partner is not entitled to any other remuneration besides performing their duties in the conduct of business. The partnership firm obliges all the partners to share their expertise and skills.
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Compensation the firm incase of Fraud
Sec. 10 of the partnership act states that a partnership firm’s partner is responsible for compensating the firm for any losses incurred by the firm as a result of a partner’s dishonesty.
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Compensation for losses and to keep track of any profit
All the Partners in a Partnership Firm are responsible for causing harm to the firm in equal proportions. The firm requires the partner to account for and return any profit made from its property, name, connections, transactions, or any other means.
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Profits by competing business
The partnership firm holds the partner liable for all the earnings generated by any competing business that is identical or the same as the partnership firm’s business. The partnered firm will not consider itself responsible for any business loss.
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To compensate for willful misconduct
If there is any damage or loss caused by the conduct of the partner in the firm’s business or deliberate carelessness that partner is liable to compensate for the same.
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Other Duties of Partners
All the partners must perform the operations of the partnership firm due to legal obligation. Following are the partner’s general responsibilities:
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Obligated to carry the general business to the greatest benefit of all parties.
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Ethical & Faithful behavior towards his fellow partners.
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Providing True information about all the matters affecting the partnership firm to any other partner or the legal representative.
Conclusion
In a Partnership Firm the partners are free to determine the mutual rights and responsibilities. The common goal of the relation between partners is profit and avoiding losses.
The legal proviso determines the mutual rights of the partners. Also, these rights are provided by partnership act,1932 it could also end the same incase of contravention between parties.
