BCOC -133 BUSINESS LAW CHAPTER-13 RIGHTS, DUTIES AND LIABILITIES OF PARTNERS

 

BCOC -133 BUSINESS LAW
CHAPTER-13 RIGHTS, DUTIES AND LIABILITIES OF PARTNERS

Mutual Relations of Partners

Partnership Agreement:
Mutual relations of partners in a partnership refer to the interconnected rights, duties, and obligations among the partners within the business structure. These relations are primarily defined by the partnership agreement, if one exists, and are supplemented by the provisions of the Partnership Act. The partnership's internal dynamics, including decision-making, profit-sharing, and responsibilities, are shaped by these mutual relations, fostering cooperation and guiding the conduct of each partner in the collective pursuit of business objectives.

Importance: Governs the internal workings of the partnership.

- Flexibility: May not cover all aspects; allows for adjustments through mutual agreement.

Provisions of the Act:
Statutory Framework: Sections 9 to 13 and Sections 16 to 25

of the Partnership Act provide a legal framework.
- Mandatory Duties: Sections 9 and 10 outline absolute

duties, others are modifiable by agreement.

Rights of Partners:

Right to Participate:
1. Active Involvement: Partners can actively contribute to

business operations.
2. Right to Express Opinion: -Open Communication:

Partners have a platform to voice opinions on crucial matters.

3. Right to Access Books: Transparency: Ensures partners can review and understand the financial records of the firm

4. Equal Profit Sharing:

-Fair Distribution: Profits shared equally by default unless

specified otherwise.

5. Interest on Capital:

Financial Incentive:- Interest on capital, if agreed upon,

enhances returns for partners.

6. Right to Indemnification:

Risk Management:- Partners are protected from losses

incurred in ordinary and proper business conduct.

7. Joint Ownership of Property:

-Collective Ownership: Partners collectively own and use

partnership property for business purposes.

8. Right in Emergency:

-Emergency Powers: Partners authorized to take necessary

actions in unforeseen situations.

9. Retirement Rights:

- Voluntary Exit:- Partners have the right to exit as per

agreement, mutual consent, or notice in a willful partnership.

10.Limited Competition: - Fair Business Practices: Outgoing partners have the freedom to compete with certain ethical restrictions.

11.Sharing Profits After Retirement:

Continued Entitlement: Outgoing partners entitled to a share

in profits or interest until a final settlement.

Duties of Partners:

vMandatory Duties:

- Trust and Good Faith: Partners obligated to act for the

mutual benefit of the firm with utmost good faith.

vDuties Subject to Agreement:

- Customisation: Duties like diligent attendance, contribution

to losses, and indemnification are adaptable through agreement. 

1. Diligence in Business Duties

2. Unremunerated Performance

3. Equal Contribution to Losses

4. Indemnification for Loss

5. Exclusive Use of Partnership Property

6. Accounting for Profits and Transactions

7. Authority to Act as Agent

8. Limitations on External Business Activities 

9. Consent for Assignment of Rights

10. Joint and Several Liability

Property of the Firm:

-Definition:- Property includes assets initially contributed,

acquisitions, those bought with firm funds, and goodwill. -Agreement Impact:- Partners can customize what constitutes

firm property through the partnership agreement.

Relation of Partners with Third Parties

Mutual Agency:- Dual Role: Partners act as agents and principals simultaneously, binding each other in business transactions.

1. Implied Authority Definition:

- Authority granted to a partner by mutual agreement.

- May not be expressly defined but inferred from the nature

of the partnership.

2. Conditions for Implied Authority:

- Act must relate to the normal business of the firm.

- The act must be done in the usual way of carrying on the

firm's business.

- The act must be done in the firm's name or imply an

intention to bind the firm.

3. Acts Within Implied Authority:
   - Purchasing goods the firm deals with.
   - Selling goods of the firm.
   - Receiving payment of debts.
   - Settling accounts with third parties.
   - Employing necessary servants.
   - Borrowing money for the firm.
   - Pledging goods as security for loans.
   - Drawing, accepting, endorsing negotiable instruments. 

4. - Employing solicitors for firm purposes.

5. Acts Outside Implied Authority:
   - Submitting disputes to arbitration.
   - Opening a bank account in partner's name.
   - Compromising or relinquishing firm claims.
   - Withdrawing suits or proceedings.
   - Admitting liability in a suit or proceedings.
   - Acquiring or transferring immovable property.
   - Entering into a partnership on behalf of the firm.

5. Authority in Emergency: - In emergencies, a partner has authority to protect the firm from loss.

- Acts in emergencies, not part of implied authority but binding on the firm.

6. Effect on Third Parties:

- All partners liable to third parties for acts within express or

implied authority.

- Liability extends to acts done in the usual course of business.

7. Extension or Restriction of Authority:

- Authority may be extended or restricted by mutual

agreement.

- Third parties not bound by restrictions unless they have

knowledge of them.

8. Notice to Acting Partner:

- Notice to an acting partner is considered notice to the firm.

 - Applies in normal business matters, not fraudulent

activities.

9. Liability of Partners:

- Joint and severally liable for all acts of the firm.

- Liability for wrongful acts in ordinary course of business.

10. Liability for Misapplication:

- Firm liable if partner misapplies money or property

received in apparent authority.

- Applies to acts done in the course of business with third parties.

Position of Incoming and Outgoing Partners

1. Admission of a Partner:

- Consent of all existing partners required.

- Incoming partner not liable for previous firm debts.

- Exceptions: Mutual agreement or minor attaining majority.

2. Retirement of a Partner: - Ways to retire: Consent, express agreement, or notice in a will partnership.

- Continuing liability for acts pre-retirement.

- May be discharged from liability by mutual agreement.

- Rights: Competing business allowed, entitled to share post-

retirement profits.

3. Expulsion of a Partner:

- Possible with express agreement and exercised in good

faith.

- Expelled partner has rights and liabilities similar to a

retired partner.

- Subject to mutual agreement for discharge from liabilities.

4. Insolvency of a Partner:

• -  Partner declared insolvent ceases to be a partner.

• -  Firm not dissolved unless agreed in partnership contract.

• -  Insolvent partner's estate not liable for post-insolvency acts.

  5. Death of a Partner:
  - Normally, firm dissolves with a partner's death.
  - Continuation possible if agreed in partnership contract. - Estate liable for acts during the partner's lifetime.
  6. Transfer of Partner's Interest:
  - Right to transfer interest partially or fully.
  - Transferee not treated as a partner unless others agree.                               - No transfer with the intent to make the transferee a

  partner without consent.

  7. Change in Profit Sharing Ratio:

  - Mutual rights and liabilities continue unless partners decide otherwise.

  - Profit-sharing ratios adjusted according to the new partnership composition.

  Understanding these aspects provides a comprehensive view of the dynamics within a partnership, safeguarding the interests and responsibilities of each partner.