Legal Guide

All You Need to Know About Partnership Retirement Deed

by Bhavya Choudhary · 3 min read

partnership retirement deed

Introduction

  • A partnership retirement deed is a legal document used by a partner to exit a partnership on good terms. They are relieved of their role and position officially by using the partnership retirement deed. 
  • This document specifies the details that a partner is voluntarily making a choice to exit the partnership business and no longer has any responsibility regarding it.
  • However, if a partner is forced to leave, a different set of procedures is to be followed. They are also called “Outgoing partners.”

Partnership Retirement Deed

  • A partnership retirement deed is an agreement that is made by the existing partner along with the continuing partners. A retiring partner is one who voluntarily wants to exit the partnership due to any reason.
  • Continuing partners are those who will carry on with their partnership business, but the terms and conditions will need an update after one partner retires.
  • A partnership retirement deed can be used for any type of partnership such as trade, service, manufacture, import, or export. The type and size of the business are not relevant here as it is an official agreement on retirement.
  • If a partner retires, this case doesn’t dissolve the entire partnership. It continues with a new updated structure and framework, which is conducted by the remaining partners.
  • A letter of resignation is also provided by the retiring partner as a supplement, along with the partnership retirement deed.
  • This method helps in saving and retaining the Bonafide of the partnership terms and also acts as a protection against future disputes that may arise in a court of law.

Contents of a Partnership Retirement Deed

A partnership retirement deed will contain some basic grounds where some points are similar to that in a partnership deed and are stated by either the retiring partner or continuing partners. These are as follows:

  • Name of the partnership: The name of the partnership firm that is legally registered and formed as per the mutual consent of all the partners.
  • The partnership’s purpose: The type of business that the partnership was based on should be described briefly along with details regarding its nature and functionality in the sector.
  • Details of each partner: The partnership retirement deed should explicitly mention names, addresses, contact information, and other legal details that might be needed for both the retiring and continuing partners.
  • The amount of final settlement: An amount is paid by one party to the other during the book closing when one partner retires. This amount of the final settlement is to be clearly stated in the partnership retirement deed.
  • Liability and responsibility: The terms and conditions must state that the retiring partner in any way is not liable or responsible for the actions of the continuing partners or any liability that the firm may have after the date of retirement. The retiring partner is free from their role and responsibility towards the partnership business.
  • Prohibitions and restrictions: The retiring partner is obligated to follow the general restrictions that were previously mentioned in the partnership deed. It is imposed to prohibit the partner from misusing company-related data and safeguard the continuing partners’ interests. The retiring partner has no right over the business and its profit or data after retirement.
  • A public notice: The partners are required to publish a public notice stating the retirement with the exact date after the execution of the partnership retirement deed.

Other than these, the partners may choose to add a few more grounds, such as:

  • Non-disclosure/confidentiality clause: This prohibits the partner from disclosing any information related to the company that might be necessary confidential.
  • Non-compete clause: This can be added to the partnership retirement deed to stop the retiring partner from competing against this said firm.
  • Non-solicit clause: This means that the retiring partner cannot recruit or solicit any employee or customer of the firm and cannot misuse the same as stated in the partnership retirement deed.

The partnership retirement deed comes into effect only after it is duly signed by the retiring and continuing partners with exact dates. In case of any type of misunderstanding or complication, the partners should seek legal consultancy services to resolve it efficiently.

Laws that are applicable in a Partnership

A business partnership is regulated and managed by a few laws which provide provisions for a peaceful structure.

  • The Indian Partnership Act of 1932
  • The Indian Contract Act of 1872

Rights of the Outgoing Partner

The rights of an outgoing partner in the partnership retirement deed are dealt with in section 36(1) of the Indian Partnership Act 1932. There are certain restrictions and prohibitions on the partner who is exiting, but they can start another business competing with the firm under regulations such as:

  • The retired partner commencing a new business cannot use the name of the firm they exited.
  • The retired partner cannot be represented as a partner or member of the firm after their partnership retirement deed is executed.
  • They cannot recruit employees and customers of the same firm for their benefit.

Conclusion

There are many advantages and disadvantages of a partnership type of business, so one must be careful while signing documents and take legal consultancy services before entering into any agreement which has complex clauses. The retiring partner or outgoing partner is free from their responsibilities and they choose it voluntarily by following the law-prescribed criteria.

A business lawyer can help an individual genuinely with different facets of agreements and deeds which can be quite complicated to comprehend sometimes.

Bhavya Choudhary

Written by

Bhavya Choudhary

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