Business Laws · The Indian Partnership Act, 1932

Rights, Duties and Liabilities of Partners (Indian Partnership Act, 1932)

Updated 1 October 2026 · Fact-checked

Partners' rights and duties are set first by their agreement (the partnership deed) and, where it is silent, by the Indian Partnership Act, 1932. Each partner is an agent of the firm, so the firm is bound by acts within implied authority, and every partner is jointly and severally liable for the firm's acts.

Understand Rights, Duties and Liabilities of Partners

A partnership is built on mutual trust and mutual agency. Every partner acts for the firm and for the other partners. That is why the Act gives detailed rules on what partners can do, what they owe each other and who pays when things go wrong.

The first rule is freedom of contract. Partners can fix their own rights and duties in the partnership deed, which is the written agreement. The deed can be changed by consent of all partners. If the deed is silent, the default rules of the Act apply. Always check this order in an answer: agreement first, Act second.

The second idea is implied authority. Under Section 19, a partner's act done in the usual way of business binds the firm. The firm is bound because the partner is its agent. But this authority has limits. Unless there is a custom of trade or a special agreement, a partner cannot do certain acts. These are the exceptions, and they are examined often.

The third idea is liability. Third parties deal with the firm, not with the private arrangements between partners. So the law makes partners liable to outsiders jointly and severally. Among themselves, partners can still agree on how losses are shared. Keep these two levels separate: liability to third parties, and rights and duties between partners.

Key rules to remember

Mutual rights (Section 12 and Section 13 defaults): Every partner may take part in conduct of business; has access to books; shares profits equally; has no salary; is paid interest on advances at 6% p.a.; no interest on capital; is indemnified for payments made and liabilities incurred in the ordinary and proper conduct of business, and for acts done in an emergency to protect the firm from loss, as a person of ordinary prudence would; These apply only if the deed or a contract does not say otherwise. Profits are shared equally even if capital is unequal.
Duties of partners: Carry on business to the greatest common advantage; be just and faithful; render true accounts and full information; indemnify the firm for loss caused by wilful neglect or fraud; do not make secret profit; do not compete with the firm; hold and use firm property only for firm purposes; Do not cite section numbers you are unsure of. A correct rule in plain words scores well.
Section 19(1) Implied authority: Act done to carry on the business in the usual way binds the firm; Authority is subject to Section 19(2) exceptions.
Section 19(2) Acts a partner cannot do without express authority: In the absence of any usage or custom of trade to the contrary, the implied authority does not empower a partner to: (a) submit a dispute relating to the business to arbitration; (b) open a bank account on behalf of the firm in his own name; (c) compromise or relinquish any claim or portion of a claim by the firm; (d) withdraw a suit or proceeding filed on behalf of the firm; (e) admit any liability in a suit or proceeding against the firm; (f) acquire immovable property on behalf of the firm; (g) transfer immovable property belonging to the firm; (h) enter into partnership on behalf of the firm; Memory aid: group them as disputes (a, c, d, e), money and property (b, f, g) and partnership (h). Authority can be extended by agreement.
Section 25 Liability of a partner for acts of the firm: Every partner is liable jointly with all other partners and also severally for all acts of the firm done while he is a partner; A creditor can sue all partners together or recover the full amount from any one. That partner can then claim contribution from the others.
Section 26 Liability for wrongful acts of a partner: Where loss or injury is caused to any third party by the wrongful act or omission of a partner acting in the ordinary course of the firm's business or with the authority of his partners, the firm is liable to the same extent as the partner; The firm is liable only if the act was in the ordinary course of business or authorised by the other partners. A private wrong outside the firm's business does not make the firm liable.
Section 27 Misapplication by partner: The firm must make good the loss in two cases: (1) a partner acting within his apparent authority receives money or property from a third party and misapplies it; (2) the firm, in the course of its business, receives money or property from a third party and a partner misapplies it while it is in the custody of the firm; The test in the first case is apparent authority. In the second case it is receipt by the firm in the course of its business, plus misapplication while the property is in the firm's custody.

How to solve Rights, Duties and Liabilities of Partners questions

Use this method for any question on rights, duties, authority or liability of partners. It keeps you in provision-facts-conclusion order.

1Read the facts and identify who is asking whom: partner against partner, or third party against the firm or a partner.
2Check whether a partnership deed or agreement covers the point. If yes, the agreement decides, unless it is against the Act.
3If the deed is silent, name the default rule of the Act in plain words (equal profit sharing, no salary, 6% interest on advances and so on).
4For authority questions, state Section 19(1), then ask whether the act is in the usual course of business and whether it falls in a Section 19(2) exception.
5For liability questions, state that partners are jointly and severally liable under Section 25 and check whether the act was in the ordinary course of business.
6Apply the rule to the facts using the names and figures in the question. Do not just recite the law.
7Write a one-line conclusion that answers exactly what was asked: bound or not bound, liable or not liable, entitled or not entitled.

Quickest way: Provision-Facts-Conclusion in four lines

When to use it: Use this when you have about 5 to 7 minutes for a 5-mark case-based question.

Line 1: write the rule in one sentence, with the section only if you are sure.
Line 2: state any exception or condition (such as Section 19(2) or the deed overriding the default).
Line 3: apply it to the facts in two sentences using the question's names.
Line 4: conclude clearly, for example: The firm is not bound by the act of B.
For a list question such as rights or duties, write 5 or 6 crisp bullets rather than long paragraphs.

Common mistakes in Rights, Duties and Liabilities of Partners

Saying partners share profits in proportion to capital when the deed is silent.
It feels fair, and students mix it up with company or accounting practice.
Fix: Remember: if there is no agreement, profits are shared equally and losses likewise, whatever the capital contributed.
Giving partners a salary or interest on capital as a default right.
Accounting questions often include these, so students assume they are standard.
Fix: By default there is no remuneration and no interest on capital. Only interest on advances (6% p.a.) is a default right. Anything else needs an agreement.
Treating the Section 19(2) exceptions as absolute bans.
Students memorise the list without the condition.
Fix: State that these acts need express authority or a custom of trade. If the other partners authorise the act, the firm is bound.
Confusing joint and several liability.
The two words sound the same.
Fix: Joint means all can be sued together. Several means any one can be made to pay the whole debt. Then add that the paying partner can seek contribution from the others.
Ignoring whether the act was in the ordinary course of business.
Students jump to the liability rule without testing the facts.
Fix: Always check this condition first. An act outside the usual business without authority does not bind the firm.
Writing the deed's contents as a fixed legal list.
Students think the Act prescribes what a deed must contain.
Fix: Say the Act does not prescribe a form. A deed normally covers firm name, nature of business, capital, profit ratio, salaries, interest, duties, drawings, admission, retirement and dissolution. Mention that a written deed is not compulsory but is strongly advisable.

Worked examples

Example 1

A, B and C are partners in a trading firm. The deed is silent on remuneration and profit sharing. A has contributed ₹5,00,000, B ₹3,00,000 and C ₹2,00,000. A also lent ₹1,00,000 to the firm as an advance for business needs. Profit for the year before any adjustment is ₹3,00,000. State how the profit is shared and what A is entitled to for the advance.

Show the solution

Rule: if the deed is silent, partners share profits equally, whatever their capital.
Rule: no partner is entitled to interest on capital, and no salary, unless agreed.
Rule: a partner who gives an advance beyond his capital is entitled to interest at 6% per annum.
Interest on A's advance = ₹1,00,000 × 6% = ₹6,000 for a full year.
Interest on the advance is a charge payable before profit is divided. Profit to share = ₹3,00,000 − ₹6,000 = ₹2,94,000.
Each partner's share = ₹2,94,000 ÷ 3 = ₹98,000.

Answer: Profit of ₹2,94,000 (after A's interest of ₹6,000) is shared equally, ₹98,000 each. A also receives ₹6,000 as interest on his advance. No interest on capital is allowed.

Example 2

X, Y and Z run a firm of wholesale cloth merchants. Y, without consulting others, (i) buys cloth worth ₹2,00,000 on credit from P for the firm, and (ii) buys a shop in the firm's name from Q for ₹15,00,000. There is no special agreement or trade custom. Discuss the liability of the firm and of X.

Show the solution

Rule: under Section 19(1), a partner's act in the usual way of business binds the firm.
Case (i): buying cloth is part of a cloth merchant's usual business, so Y had implied authority.
Therefore the firm is bound to pay P ₹2,00,000. Under Section 25, X is jointly and severally liable with the other partners, so P may recover it from the firm's property or from X personally.
Case (ii): acquiring immovable property on behalf of the firm is an exception under Section 19(2). A partner has no implied authority for it.
With no express authority or custom, the firm is not bound to Q for the shop. X is not liable for it unless X and Z ratify the act.
X, if made to pay for the cloth, may claim contribution from Y and Z.

Answer: The firm is liable to P for ₹2,00,000 and X is jointly and severally liable for it. The firm and X are not bound by the shop purchase from Q, since buying immovable property is outside Y's implied authority, unless the other partners approve it.

Exam tips

Case-based questions usually test Section 19(2) exceptions. Keep the list of eight acts ready and match the facts to one clause.
Always start with 'subject to the deed' for rights and duties questions. Examiners reward the idea that agreement overrides the default.
In liability questions, write both the rule (joint and several) and the right of contribution. That second point earns the extra mark.
Cite a section number only when sure. A correct rule in plain words scores better than a wrong section.
For a short note on the partnership deed, give meaning, typical contents and importance (evidence of terms, avoids disputes, guides in disputes) in about six lines.

Practice questions from The Indian Partnership Act, 1932

Rights, Duties and Liabilities of Partners: frequently asked questions

What is the implied authority of a partner under Section 19?

A partner can do acts in the usual way of business that bind the firm. This authority is limited by Section 19(2), which lists acts needing express authority, such as submitting a dispute to arbitration or buying immovable property for the firm.

Is a written partnership deed compulsory?

No. The Act does not require the agreement to be written. A written and signed deed is still advisable because it proves the terms and avoids disputes about profit sharing, duties and authority.

What is the difference between joint and several liability of partners?

Joint liability means partners can be sued together for the firm's debts. Several liability means a creditor can claim the whole amount from any one partner. The partner who pays can claim a proportionate share from the others.

Do partners get salary and interest on capital if the deed is silent?

No. By default there is no salary and no interest on capital. A partner is entitled only to 6% per annum interest on advances beyond his capital, and to indemnity for expenses properly incurred.