Rights and Liabilities of Partners

(c) Rights and Liabilities of Partners

Mutual rights and duties — Sections 12 and 13. In the absence of a contract to the contrary

between the partners, Section 12 governs the conduct of the firm's business: (a) every

partner has a right to take part in the conduct of the business; (b) every partner is bound to

attend diligently to his duties in the conduct of the business; (c) any difference arising as to

an ordinary matter connected with the business may be decided by a majority of the

partners, each having an equal right to be consulted, but no change may be made in the nature of the firm's business without the consent of all the partners; and (d) every partner has a

right of access to, and to inspect and copy, any of the books of the firm.

Section 13 then sets out the partners' mutual financial rights and liabilities, again subject

to a contrary agreement: (a) a partner is not entitled to remuneration for taking part in the

firm's business merely because he does so; (b) partners are entitled to share equally in the

profits earned, and must contribute equally to the losses sustained by the firm; (c) a

partner who makes any payment or advance beyond the amount of capital he had agreed to subscribe

is entitled to interest at the rate of six per cent per annum on that excess amount; (d) the

firm must indemnify a partner for payments made and liabilities incurred by him in the

ordinary and proper conduct of the business, and for acts done in an emergency (see below) to

protect the firm from loss; and (e) a partner must, in turn, indemnify the firm for any loss

caused to it by his own wilful neglect in the conduct of the business.

Authority of a partner. Following directly from Section 18 (a partner is the agent of the

firm), Section 19 lays down the implied authority of a partner: "The act of a partner

which is done to carry on, in the usual way, business of the kind carried on by the firm, binds

the firm." This authority arises automatically from the fact of being a partner in that kind of

business, without needing any specific mention in the partnership deed.

• Expressed authority is authority specifically and explicitly conferred on a partner by agreement among the partners (typically recorded in the partnership deed).
• Implied authority is authority the law itself confers on every partner, simply from the nature of the firm's business, to do whatever is usual for carrying on that kind of business in the ordinary way.
• Limitations of implied authority — Section 19(2). The Act expressly places certain acts outside a partner's implied authority, unless the partner is specifically and expressly authorised to do them (either by the other partners, or by usage/custom of the particular trade): submitting a dispute relating to the firm's business to arbitration; opening a bank account on behalf of the firm in his own name; compromising or relinquishing any claim, or part of a claim, of the firm; withdrawing a suit or proceeding filed on the firm's behalf; admitting any liability in a suit or proceeding against the firm; acquiring or transferring immovable property belonging to the firm; and entering into a new partnership on behalf of the firm.
• Alteration of authority — Section 20. The partners may, by contract among themselves, extend or restrict the implied authority of any partner. However, such a restriction binds an outside third party only if that third party had actual knowledge of the restriction, or the circumstances were such that he ought to have known of it — an innocent third party, unaware of an internal restriction, can still hold the firm bound.
• Authority in an emergency — Section 21. A partner has authority, in a genuine emergency, to do all such acts as are reasonably necessary to protect the firm from loss — exactly as a person of ordinary prudence would, in similar circumstances, act for himself — and such emergency acts bind the firm, even where they might otherwise fall outside his usual implied authority.

Liability of partners to outsiders. Section 25 is the foundational rule: "Every partner is

liable, jointly with all the other partners, and also severally, for all acts of the firm

done while he is a partner." This means a third party may sue all the partners together, or any

one of them individually, for the full amount owed by the firm — and each partner's personal

assets are exposed if the firm's assets are insufficient, since a traditional partnership under

this Act carries unlimited liability.

Holding out — Section 28, already introduced under sub-topic (a): a person who, by words or

conduct, represents himself (or knowingly permits himself to be represented) as a partner of a

firm, is liable as if he were a partner to any person who has, on the faith of that

representation, given credit to the firm — regardless of whether he is actually a partner at all.

Rights and duties of partners, recapped and completed: the right to take part in management,

the right to be consulted on ordinary matters, the right to access and inspect accounts, the

right to share equally in profits (or per the agreed ratio), and the right to be indemnified for

proper business expenses, are balanced against the corresponding duties: to act within the

authority actually given, to be diligent and act in good faith for the firm's greatest common

advantage, to render true accounts, and to indemnify the firm for any loss caused by wilful

neglect or fraud in conducting its business (Section 13(e)–(f)).

Position of a Minor in a Partnership Firm — Section 30. A minor cannot become a full partner, since he lacks the capacity to contract. However, with the consent of all the partners for the time being, a minor may be admitted to the benefits of partnership. Such a

minor:

• is entitled to such share of the property and of the profits of the firm as may be agreed;
• may have access to, and inspect and copy, any of the accounts of the firm, but cannot compel their production, only inspect them;
• has his liability confined strictly to his share in the property of the firm — he is never …