Sections 16 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 16 makes a partner account to the firm for personal profits from the firm's transactions, property, business connection or name, and for profits from a competing business of the same nature. Section 17 says that when the firm changes, expires or takes up new ventures, the partners' mutual rights and duties carry over. Both sections are subject to contract between the partners.
Subject to contract between the partners, a partner who derives any profit for himself from a transaction of the firm, from the use of the firm's property or business connection, or from the firm name, must account for it and pay it to the firm (16(a)). A partner who carries on a business of the same nature as and competing with the firm must account for and pay to the firm all profits made in that business (16(b)). Under section 17, rights and duties remain the same, as far as may be, after a change in the firm; after the expiry of a fixed term, they remain the same so far as consistent with a partnership at will; and for additional undertakings they are the same as for the original ones.
Section 16: personal profits
The section opens "Subject to contract between the partners", so a partnership deed can allow what the section otherwise forbids. Section 16 has two clauses.
| Clause | Trigger | Consequence |
|---|---|---|
| (a) | A partner derives profit for himself from any transaction of the firm, or from the use of the property, business connection or firm name | He shall account for that profit and pay it to the firm |
| (b) | 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 |
Clause (a): profits from the firm's resources
The clause covers four sources: a transaction of the firm, the use of the firm's property, its business connection, or its firm name. The common thread is that the profit exists only because of the firm. Business connection is not defined in the text; it is the relationship the firm has built with customers, suppliers and others.
Example. Wasim, a partner in a trading firm, buys a lot of goods on the firm's credit and sells them privately to a customer he met through the firm, making Rs 40,000. The profit is derived from a transaction and business connection of the firm. By default, he must account for it and pay it to the firm.
This clause sits naturally with the property rule in sections 14 and 15 and the duty of good faith in section 9.
Clause (b): competing business
If a partner carries on a business of the same nature as and competing with that of the firm, he must account for and pay to the firm all profits made by him in that business.
Note the wording carefully:
- Both conditions apply: same nature and competing.
- The consequence is that he must hand over profits. The clause does not say the business is prohibited. A partner can be barred from other business altogether only if the contract so provides under section 11(2).
- The text is silent on losses made in the competing business.
Example. Yamini is a partner in a firm that supplies office stationery. She quietly runs her own stationery supply business to the same customers and makes Rs 1.2 lakh. Under 16(b), she accounts for and pays that Rs 1.2 lakh to the firm, unless the deed allows her to run it.
Can the deed change section 16?
Yes. The deed can permit outside business, permit particular side transactions, or allow a partner to keep certain profits. Equally, a deed may go further by barring other business under section 11(2). If your firm wants clear rules on side businesses, our partnership deed drafting service can write them in.
Section 17: rights and duties after change
Section 17 opens "Subject to contract between the partners". It carries the partners' mutual rights and duties through three situations.
| Clause | Situation | Rule |
|---|---|---|
| (a) | A change occurs in the constitution of a firm | Mutual rights and duties of the partners in the reconstituted firm remain the same as immediately before the change, as far as may be |
| (b) | A firm formed for a fixed term continues to carry on business after the term expires | Rights and duties remain the same as before the expiry, so far as consistent with the incidents of partnership at will |
| (c) | A firm formed for one or more adventures or undertakings carries out other adventures or undertakings | Mutual rights and duties for the other ones are the same as for the original ones |
(a) After a change in the firm
A change in the constitution of a firm means a change in who the partners are, for example when a new partner joins or an old one leaves. The text says the mutual rights and duties of the partners in the reconstituted firm remain the same "as far as may be". This avoids the need to rewrite the whole deed every time the partners change. The words "as far as may be" recognise that some terms cannot sensibly continue, for example a clause naming a partner who has left. For the rules on admission and exit, see our later articles from section 31 onwards, and our guide on reconstitution through admission and retirement.
(b) After a fixed term ends
If a fixed-term firm keeps going after the term ends, the partners' rights and duties stay as before, but only so far as consistent with the incidents of partnership at will. That means terms that fit only a fixed term, such as the term itself, give way. See section 7 for partnership at will.
Example. Zoya and Anand formed a firm for five years with profits shared 70:30. The term ends on 31 March, but they keep trading. Under 17(b), the 70:30 sharing continues, and the firm is treated with the incidents of a partnership at will.
(c) Additional undertakings
When a firm formed for particular adventures takes up other ones, the mutual rights and duties are the same for the new ones as for the original ones. The text does not require a fresh agreement.
Practical points
- Disclose side activity. Where a partner has other interests, put them in the deed with permission and limits.
- Define "competing". The text uses "same nature and competing" without detail; a deed can name the businesses or territories involved.
- Update the deed on changes. Section 17(a) keeps the old terms running, but a supplementary deed should record any intended change; see amendment to partnership deed.
- Agree what happens at term end. If the firm may carry on beyond a fixed term, say so in the deed.
Need help with side business and continuity clauses?
Without a clear clause, side income and term-end questions turn into disputes. We can draft rules on outside business, competing activity and what happens when partners or terms change as part of your partnership deed.
Key takeaways
- Section 16(a): a partner must account to the firm for personal profit from the firm's transactions, property, business connection or name.
- Section 16(b): profits from a competing business of the same nature must be paid to the firm.
- Both sections 16 and 17 are subject to contract between the partners.
- Section 17(a): after a change in the firm, rights and duties stay the same as far as may be.
- Section 17(b): after a fixed term, they stay the same so far as consistent with partnership at will.
- Section 17(c): other undertakings follow the original rights and duties.
Read next
- Sections 14 and 15: property of the firm and its application
- Sections 18 and 19: partner as agent and implied authority
- Reconstitution of a partnership: admission and retirement
- Duties of partners under the Partnership Act
Disclaimer: Based on the text of the Indian Partnership Act, 1932 as consulted on 1 October 2026. Several States have amended the registration chapter and make their own rules, forms and fees for the Registrar of Firms. This article is general information, not legal advice; check the official text and your State's rules before acting.