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EORUPA SCIENCE & COMMERCE ACADEMY

Q. No. 6: ANSWER: Explain the various rights, duties, and liabilities of partners?

RIGHTS, DUTIES, LIABILITIES


INTRODUCTION: When an individual joins partnership firm, he is bound to fulfill some duties as well as some liabilities. He also has some rights which may be decided by the partners. If they dont decide at the formation of partnership then Partnership Act 1932 determines the rights, duties, and liabilities of the partners which are discussed below: DUTIES OF THE PARTNERS: Following are the duties of the partners: General Duties of the Partner: Section 9 of the partnership Act describes the general duties of partner as under: Partners are bound to carry on the business of the firm to the greatest common advantage, to be just and faithful to each other and render the true account and full information of all things affecting the firm to any partner or his legal representative. All the duties of partners arise from the principle of good or faith which is to be all the end all of a partnership these duties as described in Section 9, 10, 12 & 13 of partnership Act are described as follows: 1: Duty to Work Diligently: Every partner must use his knowledge and skill for the benefit of the firm. He must conduct the business with the best of his ability and secure maximum benefits for the firm. 2: Duty to Work for Common Advantage: It is the duty of every partner that he must work for the best common advantage of the entire partners. In this way mutual trust and confidence is created among all the partners.. 3: Duty to Just and Faithful: Every partner must be just and faithful to his co-partners. He must observe utmost good faith and fairness towards other partners of the firm. 4: Duty to Render Accounts: Every partner must render true and proper accounts to his co-partners. It means that each partner must be ready to explain the accounts of the firm and produce vouchers in support of the entries. 5: Duty to Share Loss: Every partner of the firm is responsible to share equally any loss incurred by the business of the firm in the absence of any agreed ratio. 6: Duty to Provide Information: Every partner must give full information about the firm to his co-partners. A partner being an agent of other partners must not conceal any information concerning the firm from other partners. 7: Duty not to make Secret Profit: A partner should not make any secret profit by way of commission. If he does so, he will have to return to the firm. 8: Duty to Work without Remuneration: In the absence of agreement, every partner must conduct the business activity without any remuneration i. e. salary or commission in the form of goods.

Prepared By: H. ABDUL REHMAN

0321-6485593

EORUPA SCIENCE & COMMERCE ACADEMY


9: Duty to Indemnify for Frauds: According to section 10 of the Partnership Act, every partner shall indemnify the firm for any loss caused to it by his fraud in the conduct of the business of the firm. 10: Duty to indemnity for willful Neglect: According to Section 13(1). If the firm suffers any loss due to willful negligence by any partner, the partner concerned must compensate of the firm and other partners. 11: Duty not to use Firms property: A partner must not employ the firms property for his personal use or benefits. 12: Duty not to transfer his share: No one can transfer his share in the firm to another person without the mutual consent of the partners of the firm, with the aim of making him partner in the firm. 13: Duty not to start any other Business: A partner should not without the consent of his co-partners engage in any business, either openly or secretly which competes, the partnership business. 14: Duty to Return Profit: The property of the firm is the property of all partners. If any partner earns any profit using the property or name of the firm or from the business connected with the firm, he shall be bound to return such profit to the firm. 15: Duty to Act within Authority: Every partner must act within his authority given to the firm. RIGHTS OF PARTNERS: Following are the rights of the partners. 1: Right to take part in management: Every partner has a right to take part in the conduct of the business. 2: Right to Inspect Books: Every partner has a right to check the books of a counts of the firm and to get the copies. 3: Right to be consulted: Every partner has a right to be consulted and heard before any matter is decided. 4: Right to share Profit: Every partner has a right to share equally in the profits earned by the fm, irrespective of his amount of capital contribution. 5: Right to take interest on Advances: A partner is entitled to receive 6% interest on loans made by him to the partnership; uncle is agreed that no such interest would be allowed. 6: Right to Use Property: Every partner of the firm is a co-owner in the property of the firm and he has a right to use it for the best benefit of the business of the firm. 7: Right to be Indemnified: The partnership must indemnify the every partner in respect of: a) Payment made by him. b) Personal Liabilities incurred by him in the conduct of the business. 8: Right to give Opinion: Nature of the partnership business cannot be altered without the prior approval of all the partners. Similarly no partner can be admitted or expelled from the firm without the prior consent of the partners. 9: Right to Collect Debts: A partner has an implied right to collect partnership debts and to give receipts for payment. 10: Right to Act as Agent: Every partner can act as an agent on behalf of the remaining partners and bind the other partners to his act. Prepared By: H. ABDUL REHMAN 0321-6485593

EORUPA SCIENCE & COMMERCE ACADEMY


11: Right of Retirement: Every partner has a right to retirement from the firm with the mutual consent of all other partners. But when the partnership is at will he can leave the firm at any time which giving a due notice of his retirement from the firm. 12: Right after Retirement: When any partner is retired from due to any reason but he is not given the share of his property or accounts have not been settled with him, he is in entitled to share the profit of the business earned after his retirement or he has a right to get interest on his share of property at the rate of 6% per annum. LIABILITIES OF PARTNERSHIP: According to Section 25, 26, 27 of the partnership Act subject to contract between the partners, the obligations of a partner are as follows: 1: Liability of partner for Acts of the firm: Every partner is liable for act of the firm, which have been done by him while he was a partner. Further, the liability of all the partners is unlimited. 2: Joint Liabilities of Partners: The liability of the partners is both joint and several. The creditors can sue all the partners together or can sue them separately for his whole debts. 3: Liability of the firm for the Wrongful Act: Where by the wrongful act or omission of a partner acting in the ordinary course of the business of the firm, or with the authority of his partner, loss or injury is caused to any third party or any penalty is incurred the firm is liable to the same extent as the partner. 4: Liability or Compensation: If an individual partner of the firm receives money or property form third person and same is misapplied, the firm will be liable to make good the loss. 5: Liability of Incoming Partner: An incoming partner is liable for all acts of the firm done after he becomes a partner. But he is not liable for nay obligation of the firm before ate of admission. 6: Liability of Retiring Partner: A retired or expelled partner will not be liable for any act of the firm after his retirement. But retired or expelled partner will be liable to third parties for all acts of the firm until he serves public notice of retirement or expulsion. CRUX: The rights and duties of partners are determined by agreement between the partners. But where the agreement is silent the Partnership Act determines the rights and duties of partners.

Prepared By: H. ABDUL REHMAN

0321-6485593