Know your Partnership Rights

Partnership is a very convenient way of starting a venture and doing business. A number of times, a couple of friends, siblings or even colleagues, jump into the entrepreneurial world bound together as ‘partners’.

Legally speaking, a partnership is an association of two or more persons, known as general partners, who act as co-owners of a business and operate it for profit. While you are not legally required to have a written partnership agreement, an oral agreement may suffice, but it is still good business sense to put everything (the details of ownership, including the partners’ rights and responsibilities and their share of profits) down on paper to avoid potential misunderstandings and disagreements.

According to the Partnership Act of 1932, the partners are free to determine the mutual rights and duties by contract. We help you with a glimpse of the rights and liabilities of partners:

Rights:

• Take active part in business, unless there is specific contract to the contrary;
• Be informed of all business matters relating to the company;
• Share equally in the profits earned, and shall contribute equally to the losses sustained by the firm;
• Where a partner is entitled to interest on the capital subscribed by him, such interest shall be payable only out of profits;
• Be indemnified in respect of payments made and liabilities incurred by him
o in the ordinary and proper conduct of the business; and
o in doing such act, in an emergency, for the purpose of protecting the firm from loss, as would be done by a person of ordinary prudence, in his own case, under similar circumstances; and
• On the dissolution of a firm every partner or his representative is entitled, as against all the other partners or their representatives, to have the property of the firm applied in payment of the debts and liabilities of the firm, and to have the surplus distributed among the partners or which representatives according to their rights.