Management > General Management > Forms of Business Organizations > Rights of Partners
Partners can determine their mutual rights and duties by a contract called a partnership deed. The partnership deed determines aspects of general administration, distribution of work among partners, the extent of share in profits, etc. Such a deed can be expressly made or implied by a course of dealing. The Rights of partner are specified in the Indian Partnership Act, 1932.
Rights of Partner:
Right to participate in business:
Each partner in a partnership has the right to take part in the business proceeding. But this right is subject to a contract to the contrary. However, this right may be waived by a partner himself. Partners can curtail this right to allow only some of them to contribute to the functioning of the business if the partnership deed states so.
If a particular partner’s management power is interfered with or he has been wrongfully prevented from participating in the partnership business, the Court of Law can intervene under such circumstances. The Court can, and will, restrain the other partner from doing so by injunction. Other remedies for such partner include a suit for dissolution, a suit for accounts without seeking dissolution. This provisions of the law will be applicable unless there is no existing contract to the contrary among the partners.
Right to be Consulted:
In case of a difference of any sorts arises between the partners of a firm concerning the business of the firm and is not very important for the business, it shall be decided by the views of the majority among the partners. Every partner in the firm shall have the right to express his opinion before the decision is made. However, there can be no change in the nature of business of the firm without the consent of all the partners involved.
Right to Inspect Books of Accounts:
Every partner (active or sleeping) has a right to have access to and to inspect and copy any of the books of accounts of the firm and take a copy of the same if required. However, this right must be exercised in a bonafide manner. This right can be exercised either by the partner himself or by his authorized agent. Other partners cannot object to the inspection of books by the partner or the agent of a partner unless they have a reasonable ground for believing that the trade secrets might be leaked out.
Right to Share Profit:
Every partner has a right to share profits, equally unless otherwise mentioned, in the partnership deed. At the same time, the partners are equally liable to all the losses sustained by the firm unless otherwise agreed upon as per the partnership agreement. If there is no agreement about the profit or loss in the partnership deed, then it can be presumed that the share of profit is equal and the burden of proving that the shares are unequal, will lie on the party alleging the same.
Right to Oppose Entry of New Partner:
All the partners of a partnership firm have the right to prevent the introduction of a new partner in the firm. No new partner can be admitted into a partnership without the consent of all partners. They have the right to object such admission unless there is an express contract allowing such introduction.
Right to Get Interest on Capital:
In a general rule, no interest is payable to the partners because it is assumed that, the partner is not a creditor of the firm but an adventurer. However, if it is allowed by an express or implied agreement or by the custom of trade, a partner or by any special statutory provision can charge interest on capital. The following points must be ensured before a partner can be entitled to interest on the capital brought by the partner in the business. If it is allowed by an express or implied agreement or by the custom of trade, a partner can charge interest on capital. In such a case also, interest shall be paid only out of profits.
Right to Get Indemnified:
All the partners of the firm have the right to be repaid by the firm in respect of the payments made and the liabilities incurred by him in the ordinary and proper conduct of the business of the firm. This also includes the performance of an act in an emergency for protecting the firm from a loss. They can claim indemnity from each other for these decisions. Such decisions must be taken in situations of emergency and should be of such nature that an ordinarily prudent person would resort to under similar conditions.
Right to Get Remuneration:
Generally, no partner of the firm is entitled to receive any remuneration along with his share in the profits of the business by the firm as a result of taking part in the business of the firm. But such remuneration may be allowed by an express agreement between the partners. Where it is customary to pay remuneration to a partner for conducting the business of the partnership firm, the partner may claim it even in the absence of a contract for the payment of the same. It is common practice for partners to agree that a managing partner will receive over and above his share, salary or commission for the efforts that he will take while conducting the business of the firm.
Right to Get Interest on Advances:
A partner has a right to get interest at rate 6 percent per annum on advances he has made in addition to the amount of capital to the firm. It is to be noted that while the interest on capital account ceases to run on dissolution, the interest on advances keeps running even after dissolution and up to the date of payment. As per the Indian Partnership Act, 1932, the advance by the partner is regarded as loans which should bear interest while the capital interest takes an interest only when there is an agreement to this effect.
Right to Retire:
Every partner of a partnership firm has the right to withdraw from the business. A partner can retire from the partnership with the consent of all the partners, or as per the agreement between the partners, or in case of a partnership- at-will, by giving prior notice to the other partners regarding the intention of his retirement.
Right not to be Expelled:
Every partner has a right not to be expelled from the firm unless there is a clause in the partnership agreement that gives power to the majority of the partners to expel him in good faith.
Right of Outgoing Partner to Carry on a Competing Business:
Outgoing partners cannot be restricted to carry on a competing business as they are not bound by the partnership agreement. The partner may even advertise such activity but has to do so without using the firm’s name or representing himself as carrying on the business of the firm or soliciting the clients who were dealing with the firm before the partner ceased to be a part of the partnership firm. However, he may agree with the partners that he will not carry on any competing business.
Right of Outgoing Partner to Share Subsequent Profits:
If a partner has died or ceased to be a partner and the existing partners carry on the business of the firm with the property of the firm without any final settlement of accounts as between them and the outgoing partner or his estate (legal heir), the outgoing partner or his estate has, at his or his representative’s option, the right to such share of profit made since he ceased to be a partner. It is attributable to the use of the share of the ceased partner of the property of the firm. The outgoing partner or his estate has right to get their proportionate share of the profit and interest at 6 per cent per annum on the amount of the partner’s share in the property of the firm.
Right to Dissolve the Firm:
A partner of a partnership firm has the right to dissolve the partnership with the consent of all the other partners. However, where the partnership is at will, the firm may be dissolved by any partner by giving notice in writing to all the other partners of his intention to dissolve the firm.
Right to the Use of the Partnership Property
In the absence of any contract to the contrary, each partner is presumed to have an equal share in the property of the partnership and is entitled to have them held and used only for the purpose of the business. Partners should not use it as their own property. When at any point of time, a partner uses the property of the business firm to his own benefit either directly or indirectly, the profits thus earned are accountable to the firm.
Right to Have No Liability before Joining the Firm:
Unless there is a contract to the contrary, the new partner will not have any liability for any act of the firm done before he becomes a partner.
Power in an Emergency
As per the Indian Partnership Act, a partner is vested with the powers to initiate action to safeguard the firm from loss.
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