N.Y. Partnership Law § 40

Equal profits, no salary: N.Y. Partnership Law § 40

N.Y. Partnership Law § 40 rules: partners share profits equally, have equal management rights, get no salary, and decide ordinary matters by majority vote.

Official text N.Y. Partnership Law § 40 — New York

§ 40. Rules determining rights and duties of partners. The rights and duties of the partners in relation to the partnership shall be determined, subject to any agreement between them, by the following rules:

  • 1. Each partner shall be repaid his contributions, whether by way of capital or advances to the partnership property and share equally in the profits and surplus remaining after all liabilities, including those to partners, are satisfied; and except as provided in subdivision (b) of section twenty-six of this chapter, each partner must contribute toward the losses, whether of capital or otherwise, sustained by the partnership according to his share in the profits.
  • 2. Except as provided in subdivision (b) of section twenty-six of this chapter, the partnership must indemnify every partner in respect of payments made and personal liabilities reasonably incurred by him in the ordinary and proper conduct of its business, or for the preservation of its business or property.
  • 3. A partner, who in aid of the partnership makes any payment or advance beyond the amount of capital which he agreed to contribute, shall be paid interest from the date of the payment or advance.
  • 4. A partner shall receive interest on the capital contributed by him only from the date when repayment should be made.
  • 5. All partners have equal rights in the management and conduct of the partnership business.
  • 6. No partner is entitled to remuneration for acting in the partnership business, except that a surviving partner is entitled to reasonable compensation for his services in winding up the partnership affairs.
  • 7. No person can become a member of a partnership without the consent of all the partners.
  • 8. Any difference arising as to ordinary matters connected with the partnership business may be decided by a majority of the partners; but no act in contravention of any agreement between the partners may be done rightfully without the consent of all the partners.

Text as published in the 2026 snapshot of the code.

Source: Vaquill Open US Law, compiled from official state publishers (huggingface.co), reproduced under license CC BY 4.0.

Read this provision at the official source →

What it actually says

Everything in this section is prefaced by four words: "subject to any agreement between them". These are the rules that apply when the partners did not write anything down, or did not cover the point, and they are frequently a surprise to people who assumed something else.

Profits and losses. Each partner is repaid contributions, whether capital or advances, and shares equally in the profits and surplus remaining after all liabilities including those to partners are satisfied. Equally - not in proportion to what each put in, and not in proportion to who worked harder. Losses are contributed toward according to each partner's share in the profits, so equal profit shares mean equal loss shares. The partnership must indemnify every partner for payments made and personal liabilities reasonably incurred in the ordinary and proper conduct of the business or the preservation of its property. A partner who advances money beyond agreed capital is paid interest from the date of the advance; a partner receives interest on contributed capital only from the date repayment should have been made.

Management and pay. All partners have equal rights in the management and conduct of the business - again equal, regardless of contribution. No partner is entitled to remuneration for acting in the partnership business, except that a surviving partner is entitled to reasonable compensation for winding up the affairs. So a partner who works full time while another does not is not entitled to a salary for it unless they agreed one.

Decisions and admission. No person can become a member of a partnership without the consent of all the partners. Any difference arising as to ordinary matters connected with the business may be decided by a majority - but no act in contravention of any agreement between the partners may be done rightfully without the consent of all.

When it applies

  • One partner put in most of the money and assumes a bigger share of the profits.
  • One partner works full time in the business and wants to be paid a salary for it.
  • Partners disagree about an ordinary business decision and there is no agreement covering it.
  • A partner wants to bring in a new partner and the others object.
  • A partner has paid business expenses personally and wants reimbursement.

What this section does not say

  • It does not apply where the partners agreed otherwise. Every rule in the section is subject to any agreement between them.
  • It does not reward contribution or effort. Profits are shared equally and no partner is entitled to a salary unless agreed.
  • A majority cannot do everything. Acts contravening an agreement between the partners require unanimous consent, as does admitting a new partner.
  • It does not govern relations with outsiders. Liability to third parties is § 26.
  • It does not deal with dissolution, winding up or what a departing partner is owed.

Worked examples

Invented situations, written to show how the wording bites. They are not real cases, not judgments and not precedent, and nothing here predicts what would happen in yours.

Illustrative example

One partner put up all the capital and the other put up none. Nothing was ever signed. Two profitable years later, the partner who contributed nothing says the profits are split down the middle.

How the wording applies

Subject to any agreement between them, each partner is repaid contributions - capital or advances - and shares equally in the profits and surplus remaining after all liabilities including those to partners are satisfied. Equally means equally, not in proportion to what each put in; but contributions come back first. So it turns on whether the money advanced was a contribution to be repaid, and on whether the partners ever agreed anything that displaces the default.

How the parties settled it

They agree the capital is repaid in full before any further distribution and that profits are split equally after that, and they finally sign a two-page agreement recording it.

Illustrative example

One partner works in the business full time while the other keeps a separate job and appears at weekends. The full-time partner starts drawing a monthly salary and the other objects to it.

How the wording applies

No partner is entitled to remuneration for acting in the partnership business, except that a surviving partner may have reasonable compensation for winding up affairs. The default rewards neither effort nor contribution. What decides it is whether a salary was ever agreed between them, because every rule in the section is subject to any agreement between the partners.

How the parties settled it

They agree a modest management draw for the full-time partner, taken before profits are calculated, backdated six months and reviewed once a year.

Illustrative example

One of three partners wants to bring in a fourth who would inject cash. The other two are against it. Separately, the three cannot agree on switching to a cheaper supplier.

How the wording applies

The two questions are governed differently. No person can become a member of a partnership without the consent of all the partners, so the new partner needs unanimity and one objection ends it. A difference as to ordinary matters connected with the partnership business may be decided by a majority - but no act in contravention of any agreement between the partners may be done rightfully without the consent of all, so the supplier turns on whether the change departs from something already agreed.

How the parties settled it

The new partner is dropped in favor of a loan on written terms, and they agree that supplier changes above a set value go to a vote of all three while anything below it is left to whoever runs the buying.

How courts have read it

Decisions construing this provision. The question and the summary are ours; the quoted sentence is the court's own words, taken from the published opinion. These are the decisions in our corpus, not every decision there is, and nothing here predicts any other case. Reported 2003 to 2017.

Cara Associates, L.L.C. v. Milstein, 140 A.D.3d 657 (2016)

Appellate Division

What the court had to decide

Whether a majority of partners can remove and appoint a manager of the partnership's ordinary day-to-day business under Partnership Law § 40(8).

What it held

A new manager of the partnership's ordinary day-to-day business can be selected by a majority vote under Partnership Law § 40(8).

In the court's words
Accordingly, a new manager of the partnership’s ordinary day-to-day business can be selected by a majority vote.

Kantor v. Mesibov, 35 A.D.3d 543 (2006)

Appellate Division

What the court had to decide

Whether a partnership agreement's provision prohibiting compensation for services could be overridden by a later addendum allowing majority vote on certain matters.

What it held

Consent of all partners was required to override the no-compensation provision, and the addendum did not change that unanimity rule.

In the court's words
under the Partnership Law of New York, consent by all the partners was needed to act in contravention of the provision of the partnership agreement which prohibited any partner from receiving compensation for services rendered to the partnership (see Partnership Law § 40 [6]; Levy v Keslow, 235 AD2d 293 [1997]; cf. Partnership Law § 40 [8]).

Kantor v. Mesibov, 8 Misc. 3d 722 (2006)

trial courts

What the court had to decide

Whether a partner is entitled to compensation for services rendered to the partnership under Partnership Law § 40(6) in the absence of an express agreement.

What it held

Under Partnership Law § 40(6), a partner is not entitled to compensation for services rendered to the partnership unless there is an express agreement authorizing such compensation; here, the purported management agreement was not validly executed by all partners, so Mesibov was not entitled to the management fees he paid himself.

In the court's words
In the absence of an express agreement, Mesibov is not entitled to compensation in furtherance of Partnership Law § 40 (6).

Bailey v. Fish & Neave, 30 A.D.3d 48 (2006)

Appellate Division

What the court had to decide

Whether the partnership agreement was properly amended by majority vote to change the compensation rights of withdrawing partners, given the default rule in Partnership Law § 40(8) that prohibits acts contravening an agreement without unanimous consent.

What it held

The amendment was proper because the partnership agreement expressly allowed majority rule for all questions relating to partnership business, and § 40 is a default provision that applies only absent such an agreement.

In the court's words
It is a long-settled principle in New York law that partners are allowed to agree among themselves how their partnership will be governed, and that section 40 is a default provision only applicable absent such an agreement (see Lanier v Bowdoin, 282 NY 32, 38 [1939]; Corr v Hoffman, 256 NY 254, 272 [1931]; Urban Archaeology Ltd. v Dencorp Invs., Inc., 12 AD3d 96, 102-103 [2004]; Rodman v Reid & Priest, 167 AD2d 310, 310-311 [1990], lv dismissed 77 NY2d 874 [1991]).

220-52 Associates v. Edelman, 18 A.D.3d 313 (2005)

Appellate Division

What the court had to decide

Whether the equal distribution of partnership income under Partnership Law § 40 is required or whether an agreement for unequal division may exist, and whether the prior appeal's holding on equity interest resolved that issue.

What it held

The court held that the prior appeal decided only that the parties held an equal equity interest pursuant to Partnership Law § 40, not that partnership income must be apportioned equally, and that the issue of whether an agreement for unequal division of income existed must be remanded for factual determination.

In the court's words
This Court decided only that the parties held an equal equity interest pursuant to Partnership Law § 40; the Special Referee was confronted with the distinct issue of whether the unequal division of income was the result of an agreement between the partners.

Liddle, Robinson & Shoemaker v. Shoemaker, 12 A.D.3d 282 (2004)

Appellate Division

What the court had to decide

Whether a partner is entitled to prejudgment interest on his capital contribution under Partnership Law § 40(4).

What it held

The court held that a partner is not entitled to interest on his capital contribution for the period prior to entry of judgment.

In the court's words
In any event, we perceive no basis for awarding Shoemaker interest on his capital contribution for the period prior to the entry of the judgment (see Partnership Law § 40 [4]).

Source: Caselaw Access Project, CC0 1.0 Universal (public domain dedication).

Related sections

N.Y. Partnership Law § 11 Profit is prima facie evidence: N.Y. Partnership Law § 11 N.Y. Partnership Law § 43 Partnership Law § 43: a partner must account for any private benefit N.Y. Partnership Law § 44 Partnership Law § 44: a partner's right to a formal account N.Y. Partnership Law § 26 Partners Liable Unless LLP | N.Y. Partnership Law § 26 N.Y. Partnership Law § 73 Retiring partner share value: N.Y. Partnership Law § 73

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We copy this text from the official publisher and re-check it against that source on every page load, but we cannot guarantee it is complete, current or free of error, and we accept no liability for any reliance on it. An amendment can take effect before a consolidation catches up. The publisher's own copy is linked below; where the two differ, it is the official one that counts.

This page reproduces the text of N.Y. Partnership Law § 40 in force at the date shown and explains it in general terms. It is not legal advice and takes no account of the circumstances of your case, which can change the answer completely. For a live dispute, for limitation periods, and before taking any step in court, consult a qualified lawyer in New York.

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