Chapter VI - Dissolution of a Firm
Section 46
Section 46: Right to winding up and distribution of surplus
Section 46 gives partners and their representatives the right to have firm property used to discharge firm liabilities and then distribute the surplus.
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Need advice on Section 46?
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
On the dissolution of a firm every partner or his representative is entitled, as against all the other partners or their representatives, to have the property of the firm applied in payment of the debts and liabilities of the firm, and to have the surplus distributed among the partners or their representatives according to their rights.
Central rule and applicability
On dissolution, each partner or representative may require the other partners or representatives to apply firm property in payment of firm debts and liabilities. Only the surplus is distributed according to the partners' respective rights. Winding up therefore involves both identifying obligations and determining the remaining entitlement.
Limits and related provisions
A partner's share is not automatically a right to remove particular assets before debts are addressed. The provision must be read with the accounts and priority rules, the deed and relevant insolvency or state law where applicable. It does not state a universal equal division regardless of the partners' rights.
Hypothetical business example
Hypothetical: A dissolved firm has stock, supplier debts and partner capital balances. The partners compile the liabilities and apply the firm's assets before distributing the remaining value under their established rights.
Practical decision flow
Identify dissolution, all firm assets and the debts and liabilities that need settlement.
Determine the partners' or representatives' respective rights and the applicable settlement provisions.
Prepare a documented winding-up account and distribute only the resulting surplus according to those rights.
Check the applicable state law
This guide explains the central Section 46 baseline. State amendments, notifications and rules can affect its application. Confirm the law applicable to the firm's location and the relevant partnership agreement before acting.
Practical checklist
Do
- Identify dissolution, all firm assets and the debts and liabilities that need settlement.
- Determine the partners' or representatives' respective rights and the applicable settlement provisions.
- Prepare a documented winding-up account and distribute only the resulting surplus according to those rights.
Avoid
- A partner's share is not automatically a right to remove particular assets before debts are addressed. The provision must be read with the accounts and priority rules, the deed and relevant insolvency or state law where applicable. It does not state a universal equal division regardless of the partners' rights.
Glossary
- Winding up
- Completing the firm's affairs, paying liabilities and dealing with the remaining property.
- Surplus
- The value remaining after the relevant firm debts and liabilities are met.
Frequently asked questions
Can partners distribute all property before considering creditors?
Section 46 directs firm property toward debts and liabilities before surplus distribution.
Does every partner necessarily receive an equal surplus?
Distribution is according to their rights, requiring the applicable agreement and law to be checked.
Can a representative invoke the provision?
Yes. The text includes a partner's representative.
Need help applying this provision to your situation?
Contact BizeneedLast updated 10 October 2026