PA 1890 s. 24

Equal profits split, no salary rules: PA 1890 s. 24

PA 1890 s. 24 default rules: profits split equally, no salary, five per cent. per annum on advances, access to books, and majority vote on ordinary matters.

Official text PA 1890 s. 24 — United Kingdom

The interests of partners in the partnership property and their rights and duties in relation to the partnership shall be determined, subject to any agreement express or implied between the partners, by the following rules:— All the partners are entitled to share equally in the capital and profits of the business, and must contribute equally towards the losses whether of capital or otherwise sustained by the firm. The firm must indemnify every partner in respect of payments made and personal liabilities incurred by him— In the ordinary and proper conduct of the business of the firm; or, In or about anything necessarily done for the preservation of the business or property of the firm. A partner making, for the purpose of the partnership, any actual payment or advance beyond the amount of capital which he has agreed to subscribe, is entitled to interest at the rate of five per cent. per annum from the date of the payment or advance. A partner is not entitled, before the ascertainment of profits, to interest on the capital subscribed by him. Every partner may take part in the management of the partnership business. No partner shall be entitled to remuneration for acting in the partnership business. No person may be introduced as a partner without the consent of all existing partners. Any difference arising as to ordinary matters connected with the partnership business may be decided by a majority of the partners, but no change may be made in the nature of the partnership business without the consent of all existing partners. The partnership books are to be kept at the place of business of the partnership (or the principal place, if there is more than one), and every partner may, when he thinks fit, have access to and inspect and copy any of them.

Text in force at .

Source: legislation.gov.uk — The National Archives (legislation.gov.uk), reproduced under licence Open Government Licence v3.0.

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What it actually says

Section 24 is the partnership agreement that people who never wrote one have. Its rules apply "subject to any agreement express or implied between the partners", and where nothing was agreed they govern. The first is the one that causes most of the arguments: all the partners are entitled to share equally in the capital and profits, and must contribute equally towards losses - regardless of what each put in. A partner who funded the whole start-up and one who funded none share equally unless something else was agreed, though rule 3 gives a partner who advances money beyond his agreed capital interest at five per cent per annum.

Rule 6 is the second surprise: no partner is entitled to remuneration for acting in the partnership business. The partner who does all the work and the partner who does none take the same share. Rule 4 adds that a partner is not entitled to interest on subscribed capital before profits are ascertained, and rule 2 gives every partner an indemnity from the firm for payments and liabilities properly incurred in the ordinary conduct of the business.

The governance rules are rules 5, 7, 8 and 9. Every partner may take part in management. No person may be introduced as a partner without the consent of all existing partners. Ordinary matters connected with the business may be decided by a majority, but no change may be made in the nature of the business without the consent of all. And the partnership books are to be kept at the place of business, where every partner may inspect and copy them whenever he thinks fit. Because all of this yields to agreement, the practical significance of section 24 is that it describes exactly the outcome a partnership without a written agreement will get.

When it applies

  • Two partners who contributed very different sums and now disagree about shares.
  • One partner working full time in the business while the other does not.
  • A proposal to bring a third person in as a partner over one partner's objection.
  • A partner refused access to the accounts and bank statements.
  • A disagreement about changing the nature of the business.
  • A partner who has been funding the business from his own money and wants it recognised.

What this section does not say

  • It does not override an agreement. Every rule applies subject to any express or implied agreement between the partners.
  • It does not give a working partner a salary. Rule 6 says no partner is entitled to remuneration for acting in the partnership business.
  • It does not reflect unequal capital contributions in the profit shares. Rule 1 is equality unless something else was agreed.
  • It does not allow a majority to change the nature of the business, or to admit a new partner - both need unanimity.
  • It does not deal with expulsion. No majority may expel a partner unless an express power has been conferred: section 25.
  • It does not govern what happens on dissolution. That is sections 32 to 44.

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 funded the entire start-up and works in the business full time. The other put in nothing and works elsewhere. Nothing was ever written down. The full-time partner is told the profits split down the middle.

How the wording applies

Rule 1 gives equal shares in capital and profits regardless of what each contributed, and rule 6 says no partner is entitled to remuneration for acting in the partnership business - so on the default rules both of those objections fail. The fact that would change the outcome is any agreement, express or implied, because every rule in section 24 applies subject to one, and conduct over time can establish an implied agreement even where nothing was signed. Rule 3 does give interest at five per cent on advances beyond agreed capital.

How the parties settled it

They sign a partnership agreement setting profit shares at seventy-thirty and a salary for the working partner, effective from the start of the current year, with the funding partner's start-up money recorded as an advance carrying interest.

Illustrative example

Two partners want to bring in a third person who would run a new part of the business. The third partner in the existing firm is against it and is told they will be outvoted.

How the wording applies

The governance rules draw a line that surprises people: rule 8 allows differences about ordinary matters connected with the partnership business to be decided by a majority, but no change may be made in the nature of the business without the consent of all existing partners, and rule 7 requires unanimity to introduce a new partner. The fact that decides whether a vote is enough is therefore which of the two this is - and here it is both, so it is not.

How the parties settled it

The three agree the new person joins as an employee with a profit-related bonus for two years, with admission as a partner revisited only by unanimous agreement at the end of that period.

Illustrative example

A partner who has never handled the books asks for the bank statements and the accounts and is told there is nothing to see and it is not their department.

How the wording applies

Rule 9 requires the partnership books to be kept at the principal place of business and gives every partner the right to have access to and inspect and copy them. The fact that makes the refusal untenable is that the right belongs to each partner individually and does not depend on being the one who keeps the records. The positive duty to volunteer information, rather than merely permit inspection, sits alongside it in section 28.

How the parties settled it

They agree the books are held at the business premises with read access to the accounting software for both partners, and that management accounts are circulated quarterly.

Related sections

PA 1890 s. 1 Business in common with a view of profit: PA 1890 s. 1 PA 1890 s. 28 Section 28 Partnership Act 1890: a partner's right to true accounts and full information PA 1890 s. 25 Expulsion requires express agreement - PA 1890 s. 25 PA 1890 s. 30 Competing Partner Must Pay Profits to Firm: PA 1890 s. 30 PA 1890 s. 44 Creditors, advances, capital: order under PA 1890 s. 44

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This page reproduces the text of PA 1890 s. 24 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 England and Wales.

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