Rights of Partners on dissolution of Partnership

What are the Rights of Partners on dissolution of Partnership?

On the dissolution of partnership, a partner has the following rights.

  1. Right to an equitable lien
  2. Right to return of premium
  3. Right Where Partnership Contract is Rescinded for Fraud etc.
  4. Right to Restrain the Use of the Firm’s Name or Property
  5. Right to Earn Personal Profits by Using the Name of the Firm

They are briefly explained as below.

Rights of Partners on Dissolution of Partnership

Rights of Partners on dissolution of Partnership

1. Right to an Equitable Lien

On the dissolution of the firm, every partner is entitled to certain rights in connection with the winding up of the firm. Such rights are:

1. Right to have the property of the firm utilized in payment of its debts and liabilities.

2. Right to have the surplus distributed among all the partners as per their rights.

2. Right to Return of Premium

A partner is entitled to repay in full or such part of the premium as may have been agreed upon or as may be reasonable where—

1. Partnership has been constituted for a fixed term.

2. Partner has paid a premium at the time of his admission into a partnership.

3. The firm is dissolved before the expiration of the fixed term.

4. The firm must have been dissolved otherwise than by the death of a partner.

However, no premium shall be payable in the following cases:

1. Where the premature dissolution of partnership has been occurred by the death of a partner.

2. Where the dissolution is mainly on account of his own misconduct.

3. Where the dissolution is in pursuance of an agreement which contains no provision for the return of the premium or any part of it.

Therefore, where a partnership is dissolved prematurely without the fault of either party, the partner paying the premium is entitled to a proportionate part of the premium.

3. Right Where Partnership Contract is Rescinded for Fraud etc.

If a partner is induced to join the firm by fraud or misrepresentation by other partner, he has the right to put an end to the partnership agreement when such fraud or misrepresentation was found. A partner is entitled to the following rights besides the other rights.

1. A right of lien or retention of the surplus of the assets of the firm left after having paid the debts of the firm, for any sum paid by him with a view to purchase a share in the firm and for any capital contributed by him.

2. To rank as a creditor of the firm as to any payment made by him towards the debts of the firm, and

3. To be indemnified by the partner or partners guilty of fraud or misrepresentation against all the debts of the firm.

4. Right to Restrain the Use of the Firm’s Name or Property

In the event of dissolution of a firm,  a partner hold the right to restraint other partner to carry similar business in the name of the firm .

Using the firm’s property for his own benefit can also be restrained by a partner. It should also be noted that a partner can be so restrained until the affairs of the firm are completely wound up. However, if he has bought the goodwill of the firm, a partner cannot be restrained from using the firm name for his own benefit.

5. Right to Earn Personal Profits by Using the Name of the Firm

If, on the dissolution of a firm, a partner buys the goodwill of the firm, he has the right to use the firm’s name and earn personal profits.

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