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Duties of a partner

The duties of partners may be classified as:
  • Absolute duties
  • Qualified duties

Absolute duties

Absolute duties are imposed by law and cannot be varied by an agreement among the partners. Since a partnership relationship requires a high sense of loyalty, good faith and integrity, the law has imposed the following unalterable duties of a partner:
  • Duty to act in good faith: It is the fundamental duty of every partner to act in good faith. He should be just and faithful in dealing with other partners. Good faith requires that the partners shall not obtain a private advantage at the expense of the firm i.e. he should not make secret profits for himself at the expense of the firm.
  • Duty to carry on the business of the firm to the greatest common advantage: Every partner is bound to carry on the business of the firm to the greatest common advantage. He must use his knowledge and skill for the common benefit of the firm and should not make any personal or private profits.
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  • Duty to render true accounts: It is the duty of every partner to keep proper accounts and render correct and true accounts to each other. A partner should explain all the accounts to the other partners and must give true and correct picture of the firm.
  • Duty to give full information: Every partner is bound to provide full information to the other partners regarding material facts relating to the affairs of the partnership. Thus, if a partner is in possession of more information about the affairs and assets of the firm, he should not hide them from the other partners.

    Example: X, Y and Z are partners in a firm. X was authorized for the purchase of raw materials. Z had information on the increase in the price of raw materials. Hence, Z is bound to give this information to X and Y. This information is related to the affairs of the business.

  • Duty to indemnify for the loss caused by fraud: The purpose of this provision is that every partner should deal honestly with the customers of the firm. If some loss is caused to the firm due to fraud of a particular partner, the firm has the right to recover the same from the partner.

Note: The firm and the other innocent partners shall be liable to the third parties for the fraud caused by the guilty partner; moreover the guilty partner is liable to the other partner for the loss caused to the firm by his conduct.

  • Duty not to transfer his rights and interest: The relationship between the partners is of mutual trust and confidence. A partner cannot assign his rights and interest in the firm to an outsider so as to make him a partner of the firm. However, a partner may assign his profits and share in partnership assets to anybody after ensuring that such an assignee does not get any rights in the firm.

Qualified duties

Qualified duties are those which depend upon the contract between the partners and therefore can be varied by express or implied agreement among the partners. The partners of the firm are free to decide their mutual and respective duties by way of an agreement. If the agreement is silent, then the duties imposed by The Partnership Act will prevail.
  • Duty to attend to his duties diligently: It is the duty of every partner that he should diligently (carefully) attend to the affairs of the business of the firm. Generally, a partner is not entitled to receive any remuneration in the form of salary or commission, but if the agreement provides for such salary or commission, then it will be paid.
  • Duty to share loss equally: It is the duty of every partner to contribute to the losses of the firm. In the absence of a contract to the contrary, every partner is liable to share the losses equally. The partners may agree to share the losses in different proportions. An agreement to share profits implies an agreement to share losses also.
  • Duty to account for personal profits: If a partner derives any profit without the consent of the other partners from partnership transactions or from the use of any partnership property, name or business connection, he must account for it and pay to the firm. This is because the relationship between the partners is a fiduciary relationship (relation of trust and confidence) and no partner is entitled to make personal profits.

    Example: X and Y were partners carrying on the business of importing sugar from foreign countries and reselling the same. X was authorized to buy the sugar for the firm. While buying sugar for the firm, X bought some quantity for himself and resold the same on his personal account. X is liable to account for these personal profits. The reason for the same is that the opportunity to make personal profit came in X’s way while he was carrying on the business of the firm.

  • Duty to account for profits in a competing business: It is the duty of every partner not to carry on any business similar to, or in competition with the business of the firm. If a partner carries on a business of the same nature and competing with that of the firm, then he must account for and pay to the firm, all the profits made by him in the business, and the firm is not liable for any loss.
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  • Duty to use firm’s property exclusively for the firm: Property of the firm belongs to all the partners. It is the duty of every partner of the firm to hold and use the property of the firm exclusively for the purpose of the business of the firm. However, subject to agreements to the contrary, the partners may agree to use the partnership property in any manner they decide.

Note: In the absence of an agreement to the contrary, if a partner uses the firm’s property and makes personal profits, then he must pay back the profit to the firm.

  • Duty to indemnify for wilful neglect: Willful neglect means an intentional and purposeful omission to do a certain act. A partner guilty of willful neglect in the conduct of the business causing loss to the business is bound to compensate or indemnify the firm for such a loss.

Note: The firm is liable to a third person for the willful neglect or fraud of any of the partners.

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