Business Laws and Management · Elements of Law relating to Partnership and Limited Liability Partnership

Rights, Duties and Liabilities of Partners Explained

Updated 11 October 2026 · Fact-checked

Partners' mutual rights and duties are set by their contract (Section 11). Each partner is the firm's agent, and acts done in the usual way of the firm's business bind the firm (Section 19). Every partner is liable jointly and severally for the firm's acts (Section 25). To solve questions, ask: was the act usual, and was it excluded or restricted?

Understand Rights, Duties and Liabilities of Partners

A partnership firm is not a separate person in the way a company is. The partners run the business together, and each one acts for the others. So three questions decide almost every exam problem: what do the partners owe each other, what can one partner do that binds the firm, and who pays when something goes wrong.

Mutual rights and duties come first from the partners' own contract. Under Section 11, this contract may be express or implied by a course of dealing. All partners can change it by consent, and that consent can also be express or implied by a course of dealing. The partners may even agree that a partner will not carry on any other business while he is a partner. Section 17 adds that, subject to contract, the rights and duties stay the same after a change in the firm's constitution, and after a fixed-term firm continues past its term (as for a partnership at will). They also stay the same when a firm formed for specific adventures takes up other adventures.

Implied authority is the power of a partner to bind the firm without special permission. Section 19 says an act done to carry on, in the usual way, business of the kind the firm carries on, binds the firm. Section 19(2) then lists acts that implied authority does not cover unless a usage or custom of trade says otherwise. Examples are submitting a dispute to arbitration, opening a bank account in his own name, compromising a claim, and acquiring or transferring immovable property. The partners can extend or restrict this authority by contract (Section 20). But an act that falls within his implied authority still binds the firm despite a restriction, unless the outsider knows of the restriction or does not know or believe that person to be a partner.

Liability has two sides. For contracts and acts of the firm, every partner is liable jointly with the others and also severally (Section 25). So a creditor can go after the firm's property and the personal property of any partner. For wrongful acts, if a partner acting in the ordinary course of business, or with his partners' authority, causes loss or injury to a third party, the firm is liable to the same extent as that partner (Section 26).

After dissolution, each partner's authority to bind the firm continues only as far as needed to wind up affairs and complete unfinished transactions (Section 47). The firm is never bound by the acts of a partner who has been adjudicated insolvent. Also remember an outgoing partner may run a competing business, but cannot use the firm name, say he runs the firm's business, or solicit the firm's old customers, unless the contract allows (Section 36). A reasonable restraint agreed with partners is valid.

Key formulas to remember

Implied authority (Section 19(1)): Act done in the usual way, for business of the kind the firm carries on ⇒ binds the firm; Subject to Section 22. Both parts must be met: usual way and usual kind of business.
Acts outside implied authority (Section 19(2)): No power, unless trade usage says otherwise, to: arbitrate, open own-name bank account, compromise a claim, withdraw a suit, admit liability in a suit, acquire immovable property, transfer immovable property, enter into partnership for the firm; Learn it as a plain list of eight acts: (1) submit a dispute to arbitration, (2) open a bank account in his own name, (3) compromise or relinquish a claim, (4) withdraw a suit or proceeding, (5) admit liability in a suit or proceeding, (6) acquire immovable property, (7) transfer immovable property, (8) enter into partnership on behalf of the firm.
Change of authority (Section 20): Partners may extend or restrict implied authority by contract; an act within implied authority still binds the firm, unless the outsider knows of the restriction OR does not know or believe the person to be a partner; Two things take the outsider out of protection: he knew of the restriction, or he did not know or believe the person was a partner. Either one is enough.
Liability for firm's acts (Section 25): Every partner is liable jointly and severally for all acts of the firm done while he is a partner; Liability is unlimited and covers only acts done during his time as partner.
Wrongful acts (Section 26): Wrongful act in the ordinary course of business or with partners' authority ⇒ firm liable to the same extent as the partner; Applies to loss or injury to a third party and to penalties.
After dissolution (Section 47): Authority continues only to wind up and complete unfinished transactions; Firm is never bound by an insolvent partner's acts after adjudication.
Outgoing partner (Section 36): May compete; may not use firm name, claim to run the firm's business, or solicit its old customers (subject to contract); A reasonable agreement limiting time or place of competition is valid.

How to solve Rights, Duties and Liabilities of Partners questions

Use this order for any scenario or theory question on partners' rights, authority and liability.

1Identify who did the act and whether he was a partner at that time.
2Check the partnership contract first. Section 11 lets the partners' agreement or course of dealing fix their mutual rights.
3Test the act under Section 19(1): is it in the usual way and of the kind of business the firm carries on?
4Check Section 19(2). If the act is in the excluded list, the partner has no implied authority unless trade usage says otherwise.
5Look for any restriction under Section 20 and ask whether the outsider knew of it or believed the person to be a partner.
6If the firm is bound, apply Section 25 so that every partner is jointly and severally liable. For a wrong, apply Section 26.
7Check special situations: dissolution (Section 47), insolvent partner, or an outgoing partner (Section 36).
8State the conclusion in one line, naming the section.

Quickest way: Usual act? Excluded act? Outsider knew?

When to use it: Use for the one-mark MCQs in Paper 4, where you have under a minute per question.

Read the act. If it is a normal trading act of that business (buying stock, selling goods, paying wages), the firm is bound.
If the act is in the Section 19(2) list, the answer is usually 'no implied authority'.
If the question mentions a restriction, check whether the outsider knew. If he knew, the firm is not bound.
If the question asks who pays, choose 'jointly and severally' for firm acts.
Eliminate options that make the firm bound by a partner declared insolvent, or that give a post-dissolution partner fresh trading power.

Common mistakes in Rights, Duties and Liabilities of Partners

Saying any act by a partner binds the firm.
Students remember 'partner is agent' but forget the 'usual way, usual business' limit.
Fix: Always test both conditions of Section 19(1) before concluding.
Treating the Section 19(2) exclusions as absolute.
The list looks like a hard ban.
Fix: Remember the opening words: 'in the absence of any usage or custom of trade to the contrary'.
Thinking a private restriction always protects the firm.
Students forget the outsider's position under Section 20.
Fix: For an act within implied authority, the firm stays bound despite a restriction, unless the outsider knew of the restriction or did not know or believe the person to be a partner.
Confusing 'jointly and severally' with 'jointly'.
Both words sound alike.
Fix: Severally means a creditor can recover the whole claim from any one partner, who can then seek contribution from the others.
Mixing partnership rules with LLP rules.
Both chapters appear together.
Fix: In an LLP, a partner is the agent of the LLP, not of other partners (Section 26 of the LLP Act), and the LLP's obligations are its own (Section 27(3)). In an ordinary firm, liability is joint and several.
Letting a partner bind the firm freely after dissolution.
Students assume the firm ends the instant it dissolves.
Fix: Authority continues only to wind up and finish unfinished transactions (Section 47).

Worked examples

Example 1

Anil, Bharat and Chitra run a cloth trading firm in Surat. Bharat, without asking the others, buys 200 rolls of cloth on credit from Mehta Textiles for the firm. Is the firm bound?

Show the solution

Bharat is a partner and acts for the firm.
Buying cloth on credit is an act done in the usual way for business of the kind the firm carries on.
It is not in the Section 19(2) list of excluded acts.
So Section 19(1) applies and the act binds the firm.
Under Section 25, Anil, Bharat and Chitra are each liable jointly and severally for the debt.

Answer: Yes. The firm is bound by Bharat's purchase under Section 19(1), and all three partners are jointly and severally liable under Section 25.

Example 2

Ravi, a partner in a Pune hardware firm, agrees to buy a shop building for the firm without consulting his partners. The seller has no knowledge of any restriction. Is the firm bound under implied authority?

Show the solution

Buying a shop building is acquiring immovable property on behalf of the firm.
Section 19(2)(f) says implied authority does not empower a partner to do this, unless a usage or custom of trade says otherwise.
No such usage is mentioned in the facts.
So the question is settled by Section 19(2)(f): the act is outside Ravi's implied authority, and his being a partner does not by itself bind the firm.
The facts do not say the other partners authorised the purchase.

Answer: No. Acquiring immovable property is outside a partner's implied authority under Section 19(2), so the firm is not bound merely because Ravi is a partner. It would be bound only if the partners authorised it.

Exam tips

Learn the Section 19(2) list as a set. MCQs often ask which act is not within implied authority.
Watch the words 'jointly and severally' in options. They are the usual correct answer for liability for firm acts.
Read the facts for the outsider's position. For an act within implied authority, the firm is not bound if the outsider knew of the restriction, or did not know or believe the person to be a partner. Otherwise the restriction does not help the firm.
In written answers, name the section with each point, and finish with a one-line conclusion.
Do not confuse LLP partners, who act as agents of the LLP only, with partners of an ordinary firm.

Practice questions from Elements of Law relating to Partnership and Limited Liability Partnership

Rights, Duties and Liabilities 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, Duties and Liabilities of Partners: frequently asked questions

What is implied authority of a partner under Section 19?

It is a partner's power to bind the firm by acts done to carry on, in the usual way, business of the kind the firm carries on. It exists without any special permission. It is subject to Section 22 and to the exclusions in Section 19(2).

Can partners restrict a partner's implied authority?

Yes, by contract between the partners under Section 20. But an act within his implied authority still binds the firm despite the restriction, unless the outsider knows of the restriction or does not know or believe the person to be a partner.

Is every partner liable for the whole debt of the firm?

Under Section 25, every partner is liable jointly with the others and also severally for all acts of the firm done while he is a partner. So a creditor may recover from any partner, and that partner can claim a share from the others.

Is the firm liable for a partner's wrongful act?

Yes, if the partner acted in the ordinary course of the firm's business or with his partners' authority. Under Section 26 the firm is liable to the same extent as the partner for loss, injury to a third party, or any penalty.

Can a retiring partner open a competing business?

Yes, under Section 36 he may carry on a competing business and advertise it. Unless the contract allows, he cannot use the firm name, say he runs the firm's business, or solicit the firm's former customers. A reasonable agreement not to compete for a stated period or area is valid.