CSR and Social Governance · Partnership Firms

Rights and Duties of Partners and Firm Relations Under the Partnership Act

Updated 11 October 2026 · Fact-checked

Partners' mutual rights and duties are set first by their contract (Section 11). If the contract is silent, Section 13 fills the gaps. Towards outsiders, each partner is the firm's agent: acts within implied authority (Section 19) bind the firm. To solve a question, check the contract, the authority, the third party's knowledge, then liability.

Understand Rights and Duties of Partners and Firm Relations

A partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all (Section 4). The people are partners, together they are a firm, and the name they trade under is the firm name. A firm is not a separate legal person under this Act. It is a collective name for the partners.

There are two sets of relations. Inter se relations are between partners. External relations are between the firm and outsiders. Keep them apart in every answer.

Inside the firm, the partners' contract rules. Section 11 says it may be express or implied by a course of dealing, and all partners can vary it by consent. Section 13 applies only 'subject to contract', so it is a default list. Partners may also agree that a partner will not carry on any other business while a partner (Section 11(2)).

Outside the firm, agency is the key idea. Each partner is an agent of the firm and of the other partners. An act done to carry on, in the usual way, business of the kind the firm carries on, binds the firm (Section 19(1)). This is implied authority. The partners may extend or restrict it by contract (Section 20), but a restriction does not help the firm against an outsider who does not know of it.

Liability follows agency. The firm is liable for a partner's wrongful act in the ordinary course of business or with the partners' authority, to the same extent as the partner (Section 26). It must also make good misapplied money or property received from third parties (Section 27).

Key rules to remember

Contract governs (Section 11): Mutual rights and duties = contract between partners (express or implied by course of dealing); varied by consent of all partners; Section 13 defaults apply only if the contract is silent.
Default rules (Section 13): No remuneration; equal share of profits and losses; interest on capital only out of profits; 6% p.a. on extra advances; mutual indemnity; All apply 'subject to contract between the partners'.
Interest on extra advance (Section 13(d)): Interest = Advance × 6% × time; Applies to payments or advances beyond the agreed capital, made for the business.
Indemnity (Section 13(e) and (f)): Firm indemnifies partner for ordinary and proper conduct and emergency acts; partner indemnifies firm for loss from wilful neglect; Emergency acts must be what a person of ordinary prudence would do in his own case.
Implied authority (Section 19(1)): Act done to carry on, in the usual way, business of the kind carried on by the firm binds the firm; Subject to Section 22.
Acts outside implied authority (Section 19(2)): No power to: arbitrate; open bank account in own name; compromise or relinquish claims; withdraw suit; admit liability in suit; acquire immovable property; transfer firm's immovable property; enter partnership for the firm; Holds in the absence of usage or custom of trade to the contrary.
Restriction of authority (Section 20): Act within implied authority still binds the firm unless the outsider knows of the restriction or does not know or believe him to be a partner; Contract between partners can extend or restrict authority.
Wrongful acts (Section 26): Firm liable to same extent as the partner; Act must be in the ordinary course of business or with partners' authority.
Misapplication (Section 27): Firm liable to make good loss where a partner within apparent authority, or the firm, receives third-party money or property that a partner misapplies; Covers both receipt by the partner and misapplication while in the firm's custody.
Retirement and public notice (Section 32(3)): Retired partner stays liable to third parties until public notice of retirement; Not liable to a third party who dealt with the firm without knowing he was a partner.
After dissolution (Sections 46 and 47): Property applied to debts and liabilities, surplus distributed; authority continues only to wind up and finish unfinished transactions; Firm is never bound by acts of a partner adjudicated insolvent.

How to solve Rights and Duties of Partners and Firm Relations questions

Use this order for any case on partners' rights, duties or liability. It mirrors the provision, analysis, conclusion format.

1Identify who is in dispute: partner against partner (inter se) or outsider against firm (external).
2For inter se issues, look for an express or implied agreement first (Section 11). Apply a Section 13 default only if the facts show no agreement.
3For external issues, ask whether the act was done to carry on, in the usual way, business of the kind the firm carries on (Section 19(1)).
4Check the Section 19(2) list. If the act is on it, the partner has no implied authority unless a usage or custom of trade says otherwise.
5Check for a restriction (Section 20). Did the outsider know of it, or not know or believe the person to be a partner? If yes, the firm is not bound.
6Decide the type of liability: contract, wrongful act (Section 26) or misapplication (Section 27). Note any change in status such as retirement (Section 32) or dissolution (Sections 46 and 47).
7State a clear conclusion in one line and mention any right of indemnity or contribution among partners.

Quickest way: Contract, Authority, Knowledge, Liability

When to use it: Use for short case questions when you have only a few minutes.

Contract: is there a partners' agreement on this point? If yes, it wins.
Authority: is the act usual for this business and absent from the Section 19(2) list?
Knowledge: did the outsider know of a restriction, or not know the person was a partner?
Liability: firm bound, partners liable, then state any indemnity right.

Common mistakes in Rights and Duties of Partners and Firm Relations

Treating Section 13 rules as compulsory.
Students memorise the list without the opening words.
Fix: Always write 'subject to contract between the partners'. Equal sharing applies only if there is no agreement.
Saying a restriction on a partner's authority always frees the firm.
Students stop at the first line of Section 20.
Fix: Add the second paragraph: the firm is still bound unless the outsider knows of the restriction or does not know or believe him to be a partner.
Giving partners equal profit share without checking capital contribution.
Students link profit share to capital, as in company law.
Fix: Under the default rule, profits are shared equally and losses borne equally, whatever the capital.
Forgetting public notice when a partner retires.
Students assume retirement ends liability at once.
Fix: Under Section 32(3), liability to third parties continues until public notice is given, except towards those who never knew he was a partner.
Calling the firm a separate legal entity.
Mixing up partnership with a company or LLP.
Fix: Use Section 4: the firm is the partners collectively. Authority and liability flow through agency.
Treating all acts in Section 19(2) as always forbidden.
The list is remembered without its opening condition.
Fix: State that the bar applies in the absence of usage or custom of trade to the contrary, and that partners can extend authority by contract.

Worked examples

Example 1

A, B and C run a firm trading in textiles. The deed is silent on remuneration, profit sharing and interest. A contributed ₹5,00,000 as capital, B ₹3,00,000 and C ₹2,00,000. A also advanced ₹1,00,000 to the firm for business purposes beyond his capital, kept for one year. The firm earned a profit of ₹90,000 for the year. Advise on A's claims and the profit share.

Show the solution

Provision: the deed is silent, so Section 13 defaults apply.
Remuneration: a partner is not entitled to remuneration for taking part in the conduct of the business, so no one can claim salary.
Profit share: partners share profits equally regardless of capital. ₹90,000 ÷ 3 = ₹30,000 each.
Interest on capital: there is no agreement for it, so none is payable.
Advance: A is entitled to 6% per annum on a business advance beyond his capital. ₹1,00,000 × 6% × 1 = ₹6,000.
Conclusion: apply the defaults as above.

Answer: Each partner gets ₹30,000 of profit. No one gets remuneration or interest on capital. A is entitled to ₹6,000 as interest on his extra advance.

Example 2

P, Q and R are partners in a firm of building contractors. By agreement, P may not sign contracts above ₹10 lakh. P signs a contract for ₹25 lakh with Mehta Traders, which knows nothing of the restriction. Separately, P admits liability on behalf of the firm in a suit by a supplier. Discuss the firm's liability in both cases.

Show the solution

Contract with Mehta Traders: signing building contracts is in the usual way for a contractor firm, so it is within implied authority (Section 19(1)).
Under Section 20, partners may restrict authority by contract, but an act within implied authority still binds the firm unless the outsider knows of the restriction or does not know or believe P to be a partner.
Mehta Traders did not know of the restriction and knew P as a partner, so the firm is bound.
Admission of liability: under Section 19(2)(e), implied authority does not extend to admitting liability in a suit against the firm, absent contrary usage or custom of trade.
So P's admission does not bind the firm unless the other partners authorised it.
Conclusion: the firm is bound by the contract but not by the admission. Q and R may claim indemnity or compensation from P for breach of the restriction under their agreement.

Answer: The firm is bound by the ₹25 lakh contract because Mehta Traders had no notice of the restriction. The admission of liability in the suit does not bind the firm, as it is outside P's implied authority.

Exam tips

Open every answer with the statutory test (Section 11, 13, 19 or 26), then apply it to the facts, then conclude.
Memorise the Section 19(2) list and the words 'in the absence of any usage or custom of trade to the contrary'.
In numerical questions on Section 13, write each default rule and compute interest at 6% only on advances beyond capital.
Always check whether the outsider had knowledge. Many case facts hinge on it.
Distinguish clearly between inter se rights and rights of third parties; separate paragraphs earn separate marks.

Practice questions from Partnership Firms

Rights and Duties of Partners and Firm Relations 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 and Firm Relations: frequently asked questions

What is implied authority of a partner?

It is the authority a partner has, as agent of the firm, to do acts that carry on in the usual way business of the kind the firm carries on. Such acts bind the firm. Section 19(2) lists acts outside this authority unless a usage or custom of trade says otherwise.

Can partners restrict a partner's authority?

Yes, by contract between the partners under Section 20. But the restriction does not bind outsiders who do not know of it, if the act was within implied authority and they knew or believed the person to be a partner.

Is a retired partner still liable to third parties?

Yes, for acts that would have been the firm's acts before retirement, until public notice of the retirement is given. He is not liable to a third party who dealt with the firm without knowing he was a partner. Either he or a continuing partner can give the notice.

Is a partner entitled to a salary by default?

No. Under Section 13(a), unless the contract says otherwise, a partner gets no remuneration for taking part in the conduct of the business. Partners usually agree on a salary in the deed.