Business Laws and Ethics · Indian Partnership Act, 1932

Rights and Duties of Partners Under the Indian Partnership Act, 1932

Updated 10 October 2026 · Fact-checked

Partners' mutual rights and duties are set first by their contract, the partnership deed, which can be express or implied by a course of dealing. Where the deed is silent, the Act's default rules apply: equal profit sharing, no salary, interest on capital only if agreed, and 6% on advances. Partners must act in good faith.

Understand Rights and Duties of Partners

A partnership runs on trust, so the law lets partners write their own rules. These rules are usually in a partnership deed. The Act says mutual rights and duties may be fixed by contract between the partners. The contract can be express (written or oral) or implied by a course of dealing. It can be changed by the consent of all partners, and that consent can also be express or implied by a course of dealing.

Where the deed says nothing on a point, the Act fills the gap with default rules. These are "subject to contract between the partners". So the first question in any problem is always: what does the agreement say? Use the default rules only for the points it does not cover.

The Act also lays down general duties that apply to every partner. Partners must carry on the business of the firm to the greatest common advantage. They must be just and faithful to each other. They must render true accounts and full information of all things affecting the firm to any partner or his legal representative.

A partner may also be bound not to carry on any business other than that of the firm while he is a partner. The Act allows such a clause even though the Indian Contract Act, 1872 (section 27) otherwise restricts agreements in restraint of trade.

Rights and duties also continue through changes. If the constitution of the firm changes, the mutual rights and duties in the reconstituted firm stay the same as far as may be. If a fixed-term firm continues after its term, the same rights and duties continue so far as consistent with partnership at will. If a firm formed for certain adventures takes up other ones, the same rights and duties apply to them. All of this is subject to contract.

Key rules to remember

Source of rights and duties: Contract (express or implied) first; Act's default rules only where the contract is silent; Rights and duties may be varied by consent of all partners, express or implied by a course of dealing.
Default: remuneration: No salary for taking part in the conduct of the business; Applies subject to contract between the partners. A deed can give a salary or commission.
Default: profits and losses: Share profits equally; contribute equally to losses; Equal sharing is the default even if capitals are unequal. It holds unless the contract says otherwise.
Default: interest on capital: Payable only if agreed, and only out of profits; If a partner is entitled to interest on capital, it is payable only out of profits. The Act gives no default rate for capital.
Default: interest on advances: Interest on advance = Advance × 6% × time (per annum); Applies to payments or advances for the business beyond the agreed capital. It is not limited to profits as capital interest is.
Indemnity by the firm: Firm indemnifies a partner for payments made and liabilities incurred in the ordinary and proper conduct of business, and in an emergency to protect the firm from loss, as a prudent person would act in his own case; Covers both ordinary conduct and emergency acts.
Indemnity by the partner: Partner indemnifies the firm for loss caused by his wilful neglect in the conduct of the business; The word is wilful neglect, not any mistake.
General duties: Greatest common advantage + just and faithful + true accounts and full information; These are the duties to quote for 'duty of partners' questions.

How to solve Rights and Duties of Partners questions

Use this method for both theory and problem questions on mutual rights and duties.

1Read the facts and find whether there is a partnership deed or any agreement, express or implied, on the point asked.
2If there is an agreement, apply it. Remember it can be varied by the consent of all partners, express or implied by a course of dealing.
3If the deed is silent, apply the default rule: no salary, equal profit and loss sharing, interest on capital only if agreed and only out of profits, 6% on advances beyond capital.
4For money problems, first compute profit, then interest on capital (if allowed), then interest on advances, then share the balance in the agreed or default ratio.
5Check the general duties: greatest common advantage, just and faithful, true accounts and full information. Test whether the partner's conduct breaches any of them.
6Check indemnity: was the payment made in the ordinary and proper conduct of business or in an emergency? Was there wilful neglect causing loss?
7Write the conclusion with the rule in one line, then the application, then the answer.

Quickest way: Contract first, default second

When to use it: Use for MCQs and short-note questions asking what a partner is entitled to in a given situation.

Look for the words 'deed', 'agreed' or 'as per agreement'. If present, the agreement decides.
If absent, run through the defaults in order: salary no, profit equal, loss equal, capital interest no, advance interest 6%.
In interest on capital cases, check whether the firm has profit. No profit means no interest on capital.
Pick the option that matches the rule exactly. Reject options that say 'always' or ignore the deed.

Common mistakes in Rights and Duties of Partners

Sharing profits in the capital ratio when the deed is silent.
Students carry over the idea from companies that returns follow investment.
Fix: Default is equal sharing of profits and equal contribution to losses, whatever the capitals.
Allowing interest on capital as a default right.
Interest on capital is common in sums, so it feels automatic.
Fix: Interest on capital is paid only if the partners agreed to it, and then only out of profits.
Applying the 6% rate to capital.
Students mix up capital and advances.
Fix: The 6% default applies to payments or advances made beyond the agreed capital. The Act fixes no default rate for capital.
Giving a working partner a salary by default.
Real-life business logic suggests the active partner should be paid.
Fix: By default no partner gets remuneration for taking part in the conduct of the business. It needs a contract.
Ignoring the contract and quoting default rules directly.
Students memorise the defaults but skip the opening words 'subject to contract'.
Fix: Start every answer by checking the deed, and use defaults only for gaps.
Treating any loss as a ground for the partner to indemnify the firm.
The word 'indemnify' is read loosely.
Fix: The partner indemnifies the firm only for loss caused by his wilful neglect in conducting the business.

Worked examples

Example 1

A and B are partners with no partnership deed. A contributed capital of ₹6,00,000 and B ₹2,00,000. A also advanced ₹1,00,000 to the firm for business purposes during the whole year. The profit for the year before any interest is ₹80,000. Find each partner's share.

Show the solution

There is no deed, so default rules apply.
Interest on capital is not payable because it was not agreed. So it is nil.
Interest on A's advance = ₹1,00,000 × 6% × 1 year = ₹6,000.
Profit available for sharing = ₹80,000 − ₹6,000 = ₹74,000.
Profits are shared equally: ₹74,000 ÷ 2 = ₹37,000 each.
A receives ₹37,000 + ₹6,000 = ₹43,000. B receives ₹37,000.

Answer: A gets ₹43,000 (₹37,000 share plus ₹6,000 interest on advance); B gets ₹37,000.

Example 2

X and Y are partners. The deed says each is entitled to interest on capital at 10% per annum, and profits are shared equally. X's capital is ₹2,00,000 and Y's is ₹1,00,000. The firm's profit before interest is ₹25,000. Is interest on capital fully payable? Show the division.

Show the solution

The deed allows interest on capital, so the right exists.
Interest due: X = ₹2,00,000 × 10% = ₹20,000. Y = ₹1,00,000 × 10% = ₹10,000. Total = ₹30,000.
Interest on capital is payable only out of profits. Profit is ₹25,000, which is less than ₹30,000.
So the full interest cannot be paid. The profit of ₹25,000 is limited to the interest claim.
If the deed is silent on this point, the interest is paid only to the extent of the profit. Dividing in the ratio of interest due, 20,000 : 10,000 = 2 : 1, X gets ₹25,000 × 2/3 and Y gets ₹25,000 × 1/3.
X's amount = ₹16,667 (rounded) and Y's = ₹8,333 (rounded). Nothing is left to share as profit.

Answer: Interest on capital is payable only out of profits, so only ₹25,000 is distributed, about ₹16,667 to X and ₹8,333 to Y in the ratio of interest due. No balance remains for equal sharing.

Exam tips

Begin written answers with 'Subject to contract between the partners', then list the default rules. This earns the framework marks.
Learn the three general duties word for word in simple form. They are a frequent short-note question.
In sums, show interest on capital and interest on advances as separate lines, and check whether profit exists before allowing capital interest.
For MCQs, watch for options that give salary or capital interest as an automatic right. Both are wrong by default.
Quote the section numbers you are sure of: section 9 (general duties), section 11 (contract), section 13 (mutual rights and liabilities) and section 17 (after change in the firm).

Practice questions from Indian Partnership Act, 1932

Rights and Duties of Partners in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Rights and Duties of Partners: frequently asked questions

What are the rights of a partner if there is no partnership deed?

The default rules of the Act apply. Partners share profits equally and bear losses equally, get no salary, and get no interest on capital. A partner who advances money beyond his capital for business gets 6% per annum interest on it. He is also entitled to indemnity for payments made in the ordinary and proper conduct of business.

What are the general duties of partners?

Partners must carry on the business to the greatest common advantage. They must be just and faithful to each other. They must render true accounts and full information of all things affecting the firm to any partner or his legal representative.

Is interest on capital payable if there is a loss?

No. Where a partner is entitled to interest on capital, it is payable only out of profits. If the firm has no profit, no interest on capital is paid.

Can the partnership deed be changed later?

Yes. The contract between partners can be varied by the consent of all the partners. That consent may be express or may be implied by a course of dealing.

Can a partner be stopped from doing other business?

Yes. The partners can agree by contract that a partner will not carry on any business other than that of the firm while he is a partner. The Act allows this despite section 27 of the Indian Contract Act, 1872.