Rights and Responsibilities of Partners in a Partnership Firm

Published On: Jul 17, 2019Last Updated: Oct 14, 20234.7 min read

Partnership is a relation between two or more persons agreeing to share the profit/loss of the business run by one or more person acting for all. The persons who have entered into the partnership are individually known as ‘Partners’.

The partners, in the partnership, enter into a partnership deed which generally defines all the rights and responsibilities of partners. Subject to the partnership deed entered between the partners, the provisions of the Indian Partnership Act, 1932 also defines certain general rights and responsibilities of partners.

Rights of the partners

1. Taking part in the conduct of the business

Subject to the clause in the deed of partnership firm registration, each partner has a right to take part in the conduct of the business.

2. Expressing opinion

In case there arises any difference in the ordinary matters connected with the business, such discrepancy can be resolved by the majority of the partners.

Each partner has the right to express their opinion before deciding such a disputed matter. It is mandatory to get the consent of all the partners to make any change in the nature of the business.

3. Sharing profits

One of the basic rights of partners is to share the profit as well loss (if mentioned in the deed). Sometimes, profit/loss sharing ratio is not defined in the partnership deed. In such cases, the partners can share equal profits and contribute equally to the sustained losses.

4. Accessing the books of accounts

Each partner has the right to get involved in accounting and bookkeeping as well. Such rights enable them to access, inspect and take a copy of any of the books of accounts and financial statements, i.e. trial balance, profit and loss account and balance sheet of the firm.

In case of death of any partner, right to access, inspect and to obtain the copy of books of accounts would be available to the heirs or legal representative or duly authorized agent of the deceased partner.

5. Earning interest on capital

Usually, partners don’t have any right to earn interest on the capital contributed by them. However, in case they decide to avail the interest benefit, then, such interest payment can be made only and only out of the profits of the firm i.e. in case of loss, interest to partners is not possible.

In case any partner makes any additional payment/advances to the firm (other than agreed contribution), then, such partner is entitled to earn interest @ 6% per annum.

6. Indemnification rights

The partners have the right to be indemnified for all the acts done by him/her in the course of the business and for all the expenses made by him/her in case of emergency for protecting the interest of the firm.

7. Retiring and sharing subsequent profit post retirement

Every partner has the right to retire with the consent of other partners. However, only in case of partnership-at-will, the partner is required to give prior notice to other partners informing their intention of retiring.

If the partner retires without affecting the final settlement of the accounts. Then, in case of absence of a contract, the outgoing partner is entitled to share the profit in proportion to his/her share in the property of the firm or he is entitled to interest @ 6% on the amount of his/her share in the property of the firm.

8. Ownership of firm’s property

In the absence of any specific contract/deed, each partner is a joint owner of the firm’s property.

9. Other Rights

  • Partners have the right not to be expelled from the partnership.
  • Introduction of a new partner is not possible without the consent of the partners.

Responsibilities of partners

1. Rendering true accounts and full information

It is the duty of the partner to provide true accounts and also to provide full information.

2. Covering up for any loss caused by the fraud

If there is any loss to the firm or to any of the partner of the firm on account of fraud by a partner in the conduct of the firm’s business. In that case, the fraudulent partner is bound to compensate the firm or the partners for the loss so incurred.

3. Working for a maximum common interest

It is the most prominent duty of every partner to conduct the business for the maximum common interest of the partners.

4. Being accountable for any personal profits earned by the partners

If partners earn any profits from any transactions of the firm or earn profit from the use of the business connections or property of the firm’s name, then, the partner is liable to account for such personal profits and is required to pay it to the firm.

Further, if the partner carries on the business of the same nature and competing with that of the firm. Then, in that case, the partner is liable to account for such profits and pay to the firm all the profits derived by him/her.

5. Other Duties

  1. Every partner must be just and faithful to each other.
  2. All the partners are expected to work diligently in the conduct of the firm’s business.
  3. Subject to the contract, each partner is bound to use the property of the firm for the business purpose only.
  4. Subject to the contract, all the partners are bound to conduct the business without any remuneration.
  5. Partners are required to mandatorily obtain the consent of all the partners in case the partner is willing to transfer his/her rights and interest to another person.
  6. The partners have to work within his/her assigned authority. No partner is allowed to perform outside his/her authority.
Looking to register a partnership firm?
Connect with LW experts to get started!

Share This Post:

CA Poonam Gandhi
About the Author

CA Poonam Gandhi

Chartered Accountant, based at Ahmedabad having vast practice experience of more than 9 years in the field of Indirect Taxation. Currently, working as a 'freelance content writer' and associated with the top most leading sites. Also acting as an educator for the taxation course, 'Certificate on taxation law and GST', for the site https://www.intolegalworld.com/.