What rights does a partner have when the deed is silent?
Where the partnership deed is silent, every partner may take part in the business, the partners share profits equally, and every partner may inspect the books. A partner is not entitled to pay for acting in the business, and is not entitled to interest on capital, unless the deed agrees to it. An advance beyond the agreed capital carries interest at 6 percent a year.
Which rights apply if the deed is silent?
Section 12 gives each partner a right to take part in the conduct of the business and to have access to the books. A difference on an ordinary matter connected with the business may be decided by a majority. Any difference about the nature of the business needs the consent of all the partners. The deed can give management to some partners only. What the deed should record is on the deed page.
Is a partner paid?
| Payment | If the deed is silent |
|---|---|
| Share of profit and loss | Equal |
| Remuneration for acting in the business | None |
| Interest on capital | None, and only out of profits even when the deed allows it |
| Interest on an advance beyond capital | 6 percent a year |
A partner is indemnified for payments made, and liabilities incurred, in the ordinary and proper conduct of the business, and for protecting the firm in an emergency. That indemnity is not a salary.
Which duties cannot be ignored?
Partners are bound to carry on the business to the greatest common advantage, to be just and faithful, to render true accounts, and to give full information of things that affect the firm. Every partner has to attend diligently to the business. A partner who commits fraud in the conduct of the business indemnifies the firm for the loss.
Firm property is used for the firm. A partner who takes a personal profit from a transaction of the firm, or from the firm’s property, name, or business connection, accounts for that profit. A partner who carries on a competing business of the same nature, without consent, accounts for the profits of that business. These duties do not create limited liability. How a firm is registered is on the partnership page.
Frequently asked questions
Four questions cover a change of business, interest on capital, a competing business, and limited liability.
Can a majority change the business?
No. Ordinary matters may be decided by a majority. A change in the nature of the business needs the consent of all the partners.
Is interest on capital automatic?
No. Interest on capital is paid only if the deed agrees to it, and only out of profits. A loss year does not create that interest.
Does a competing business end the firm?
Not by itself. A partner who carries on a competing business of the same nature, without the other partners’ consent, has to account to the firm for the profits of that business.
Do these rules limit a partner’s liability?
No. The Partnership Act does not give a partner limited liability. A business that needs that limit is formed as an LLP.
Sources
The mutual rights and duties, where the deed is silent, are sections 12 and 13 of the Indian Partnership Act, 1932. The duty to account for a private profit is section 16. Fraud is section 10.