In one line
Partners owe each other good faith and full information, while most financial and management rights remain subject to their agreement.
After this note, you should be able to
- Separate mandatory duties from default rules.
- Apply management and financial rights.
- Identify misuse of firm property or secret profit.
Core duties
The partnership relationship requires loyalty, candour and care for the common business.
- Common advantage
- Section 9 requires partners to carry on business to the greatest common advantage and remain just and faithful.
- Information and accounts
- Partners must provide true accounts and full information affecting the firm.
- Fraud
- A partner must indemnify the firm for loss caused by personal fraud under Section 10.
- Secret profit
- Section 16 requires a partner to account for personal benefit obtained from firm transactions, property, name or competing business.
Default rights under Sections 12 and 13
The partnership agreement can modify many of these rules.
- Management
- Every partner may participate. Ordinary matters follow majority decision after each partner can express a view, but changing the nature of business requires unanimity.
- Books
- Every partner may access, inspect and copy the firm's books.
- Profits and losses
- Partners share equally by default, regardless of capital contribution, unless they agree otherwise.
- Remuneration and interest
- No remuneration is due by default. Interest on capital is payable only from profits, while advances beyond capital carry statutory interest unless agreed otherwise.
- Indemnity
- The firm indemnifies a partner for proper business payments and reasonable emergency acts protecting the firm from loss.
Work through the facts
Illustration
Facts
A partner secretly buys raw material personally at a discount and resells it to the firm at a profit without disclosure.
Likely result
The partner must account to the firm for the secret profit because it arose from a firm transaction and conflict of interest.
What to learn
A partner cannot privately capture a benefit obtained through the partnership position.
Cases with a purpose
Landmark judgments
Learn the rule and where to use it. A case name without its legal function adds little to an answer.
Bentley v. Craven
Further reading(1853) 18 Beav 75
Principle: A partner who makes an undisclosed profit by supplying personal goods to the firm must account for that benefit.
Use in an answer: Use it for secret profits and fiduciary duties reflected in Section 16.
Blisset v. Daniel
Further reading(1853) 10 Hare 493
Principle: A contractual power to expel a partner must be exercised honestly and in good faith for the partnership.
Use in an answer: Use it where majority power is exercised for an improper personal purpose.
For a 10-mark answer
Answer structure
- Read the partnership deed before applying defaults.
- Identify the relevant duty or management right.
- Apply Sections 9 to 17 to the conduct.
- State the accounting, indemnity or management consequence.
Common mistakes
- Ignoring the partnership agreement.
- Assuming profit shares always follow capital shares.
- Allowing majority vote to change the nature of business.
Before you close the tab
Quick revision
- Good faith and full accounts are core duties.
- Every partner may participate in business.
- Profits and losses are equal by default.
- Secret benefits must be accounted for.
Test yourself
- Can a majority change the nature of the business?
- What is the default profit ratio?
- When must a partner account for personal profit?
Short answers
Frequently asked questions
Are partners always entitled to salary?
No. A partner receives no remuneration for conducting firm business unless the partners agree otherwise.
Must partners contribute losses equally?
Equal sharing is the statutory default, but the partnership agreement may prescribe another arrangement.
Primary sources
This is an educational study note. Read the bare provision and full judgment before relying on a proposition in research or practice.