As the partnership law offers scope for the admission of a new partner, likewise it also enable the partner to retire from the partnership firm.
Partnership Agreement contains a relevant clause as to the retirement of a partner from the firm by issuing a reasonable notice to the existing partners whereafter proper account of assets, debts, liabilities, profit & loss, fixation of share, etc; is made up.
Subsequent to all the compliances concerning such retirement is made a Law Firm draws up appropriate Deed of Retirement of such partner stating inter alia cessation of his share in the profits and losses after the retirement, running of the business by the continuing partners, release by the outgoing partner of his share, right, title, interest in the partnership business, its assets, goodwill, outstanding dues & receivables and outstanding contracts, covenants by the continuing partners to pay all share, dues, claims to the outgoing partner, restrictive future covenants to which the outgoing partner is bound, publication of retirement, tax implications, etc.
Retirement of partner changes the constitution of the original partnership firm thereby altering the profit and loss sharing proportion and ratio.
Types of Retirement Agreement:
- Deed of retirement.
- Retirement of two partners (with liberty to be continuing partners to carry on the business.)
- Deed of Retirement of one Partner and admission of new partner.