RELATIONS OF PARTNERS TO ONE ANOTHER

Question 1

General duties of partner

Answer 1

Mandatory duties of a partner that cannot be changed by an agreement.
▪ Duty to be just and faithful
- An ideal partnership is one where there is mutual trust and confidence
- He must observe utmost good faith and fairness towards other partners
▪ Duty to carry on business to the greatest common advantage of the firm
▪ Duty to render true accounts to co-partners
- Each partner must be ready to explain the accounts of firm
- No partner should think of making a secret profit at the expense of the firm.
▪ Duty to provide full information to other partners
▪ Duty to indemnify (compensate) for loss caused by his fraud

Question 2

Rights and Duties by Contract

Answer 2

▪ Other than compulsory rights and duties specified by the Act, mutual rights and duties of the
partners firm may be determined by contract between the parties.
▪ Such contract may be:
- Express; or
- Implied (by a course of dealings).
▪ The partnership contract may be varied by consent of all the partners, and such consent may
be express or may be implied by a course of dealings.
▪ As an exception to rule (Agreement in restraint of trade); Partnership contracts may provide
that a partner shall not carry on any business other than that of the firm while he is a partner.

Question 3

Rights and Duties of Partners after a change in firm

Answer 3

Subject to contract between partners, the mutual rights and duties of partners remain the same
as they were immediately before the change in following situations:
▪ A change in constitution of a firm (e.g. introduction of new partner or retirement of old)
▪ A firm constituted for a fixed term continues to carry on business after expiry of that term.
▪ A firm constituted to carry out one or more businesses carries out additional businesses.

Question 4

Rights and Duties relating to the Conduct of the Business

Answer 4

The qualified duties of a partner can be changed by an agreement amongst the partners.
▪ Right to take part in the conduct of the business
- Every partner irrespective of his capital has an inherent right to take part in business
▪ Duty to attend diligently to his duties
▪ Right to be consulted in matters of the firm
- Every partner has the right to be consulted before any matter is decided.
- Any difference on ordinary matters may be decided by majority of partners in good faith
- No change may be made in nature of the business without the consent of all partners.
▪ Right to have access to the books of firm

Question 5

Mutual Rights and Liabilities

Answer 5

▪ Right for Remuneration
- A partner is not entitled to receive remuneration for taking part in the business.
- Sometimes a remuneration is allowed to working partners (subject to agreement)
▪ Sharing Profits and Losses
- Normally every partner has a right to share profits equally (unless agreed different)
- Agreement to share profits may imply an agreement to share losses also
(unless some are exempt from sharing of losses)
▪ Right to interest on capital
- Interest on capital is allowed only when agreed among the partners.
- If so entitled, such interest will be payable out of the profits, earned by the firm.
▪ Right to interest on advances
- If a partner makes for any payment or advance beyond amount of capital he has agreed
to subscribe, he is entitled to interest on it at rate of 6% per annum or as agreed upon76
▪ Right to indemnity
- Every partner has a right to claim indemnity from firm in respect of payments made or
liabilities incurred by him in ordinary cases as well as in case of emergency
▪ Duty to indemnify for wilful neglect
- Every partner shall indemnify the firm for any loss caused to it by his wilful neglect
(i.e. failure to perform a duty or to do something which the partner should have done)

Question 6

Personal Profits earned by Partners

Answer 6

▪ Duty to account for personal profits derived 77
- If a partner uses partnership property, name or business connections to make a secret
profit (a personal profit), other partners can claim those profits for the partnership.
▪ Duty not to compete with the business of the firm78
- Liable to account to firm for all the profits that he earns from competing business

Question 7

THE PROPERTY OF THE FIRM

Answer 7

Subject to contract between the partners, the property of the firm includes:
▪ All property originally brought into the common stock of the firm
▪ All rights or interest in the property originally so brought
▪ All property acquired, by purchase or otherwise, by or for the firm and all rights and interest
in any property so acquired; and
▪ Goodwill of the business of the firm
Unless any contrary intention appears any property purchased with partnership money without
other partners’ consent will be deemed to be partnership property79.

Question 8

Application of the property of the firm

Answer 8

▪ It is duty of every partner to use the property of firm exclusively for the purposes of business
(subject to contract between the partners).
▪ No partner should use partnership property for his personal benefit.

Question 9

What is Goodwill?

Answer 9

▪ It’s an accounting concept
▪ Meaning the value of an intangible asset which has a quantifiable value in a business.
▪ An example would be the reputation the firm enjoys with its customers.
▪ This reputation enables firm to earn more than the normal profits earned by other business.
(Goodwill = Value of business as a whole - Total value of identifiable net assets)