The rights of Partnership Inter Se

(1) All partners share equally in the capital and profits of the business and must contribute equally to the losses.

This does not mean where one partner only contributed capital while the other(s) contributed ‘know-how’, that on the dissolution of the partnership, this capital would then be divided among the partners. It does, however, mean that, even where the capital contribution is unequal, the partners will receive an equal share of the profits and be equally liable for any losses, including losses of capital. For example, A, B and C enter a partnership, with A contributing 10000 towards the capital, B 5000 and C ‘know-how’. If on dissolution the surplus assets after payment of debts is only 6000, in which case 9000 capital is lost, A, B and C will each be required to contribute 3000.

Where, however, one of the partners is insolvent and unable to contribute to lost capital, the other partners are not obliged to make up the deficiency, and the loss on capital will be divided between them in the ratio of their last agreed capital. Thus if C is insolvent, the capital loss of 3000 will be borne in the ratio of A and B’s capital contribution 2:1. Therefore A will lose 2000 and B will lose 1000. (A will lose a total of 5000 and B 4000.) This is the rule in Garner v. Murray [1904].

(2) The firm must indemnify partners in respect of payments made and personal liabilities incurred – in the ordinary and proper conduct of the business of the firm.

(3) A partner making an advance beyond the amount of capital which he has agreed to subscribe is entitled to interest at the rate of 5 per cent per annum.

(4) A partner is not entitled to interest on the capital subscribed by him.

(5) Every partner may take part in the management of the business.

(6) No partner is entitled to remuneration for acting in the partnership business.

It is normal for remuneration to be paid to partners who are actively involved in the running of the business, before the net profits are calculated. In this way working partners receive more than those who do not devote their whole time to the business.

(7) No person may be introduced as a partner without the consent of all existing partners.

(8) Differences as to ordinary matters of partnership business may be decided on by a majority of the partners, but no change made in the nature of the partnership business without the concent of all existing partners.

(9) the partnership books are to be kept at the place of business, and every partner may have access to and inspect and copy any of them.

The expulsion of a partner

No majority of the partners can expel any partner unless a power to do so has been conferred by express agreement between the parties.

Where there is a power of expulsion it must be used in good faith, but allows service of notice of expulsion without warning or opportunity to offer an explanation.

Duties of Partners Rendering true accounts and full information

Partners are in a fiduciary relationship with other partners and contract between them require full disclosure. This duty is owed to other partners or their legal representatives. In Law v. Law [1905], the parties were brothers and partners. The plaintiff sold his share in the partnership but later discovered that certain assets had not been disclosed to him. He succeded in an action for misrepresentation against the defendant.