Chapter III - Relations of Partners to One Another
Section 16
Section 16: Personal profits earned by partners
A partner may have to account to the firm for personal profits from firm transactions, firm assets or a competing business.
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This article is for general information. Refer to the Indian Partnership Act, 1932 official text for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
Subject to contract between the partners,—
(a) if a partner derives any profits for himself from any transaction of the firm, or from the use of the property or business connection of the firm or the firm name, he shall account for that profit and pay it to the firm;
(b) if a partner carries on any business of the same nature as and competing with that of the firm, he shall account for and pay to the firm all profits made by him in that business.
Introduction
Section 16 addresses personal profits derived from firm transactions, firm property, business connections or name, and profits from a competing business.
These duties are subject to a contrary contract between the partners, so the deed must be checked.
Key takeaways
Firm-derived profit
A partner must account to the firm for personal gains sourced from a firm transaction, property, connection or name.
Competing business
A partner in a competing business must account for all profits made in that business, subject to contract.
Trace the source of profit
Identify the transaction or asset that produced the gain and whether it belongs to or is connected with the firm.
For a competing business, compare its nature with the firm’s business and review the partnership agreement.
Illustration
A partner who uses the firm’s customer relationship for a personal side sale should test that gain under Section 16(a); a competing enterprise raises Section 16(b).
Check deed and state law
Check the partnership deed for a different allocation of profits and any applicable state amendment before applying this central accounting rule.
Practical checklist
Do
- Disclose side transactions using firm connections or assets.
- Keep separate records of any permitted outside business.
Avoid
- Do not assume a gain belongs personally to the partner merely because payment reached a personal account.
Frequently asked questions
Does the contract matter?
Yes. Section 16 begins “Subject to contract between the partners”.
Does a competing business have to pay all profits to the firm?
Section 16(b) states that default consequence for a business of the same nature competing with the firm, subject to the partners’ contract.
Need help applying this provision to your situation?
Contact BizeneedLast updated 10 October 2026