Retirement of a Partner – Explained with Illustration

When one partner in the partnership firm want to retire and all partners agree with him, the situation is known as Retirement of a Partner.

What is the Retirement of a Partner:

When one partner wants to get retirement from the partnership firm with the consent of all remaining partners if known as the Retirement of a partner. The partner may get retirement from the partnership firm in the following situation: –

1. Retiring Partner’s own choice to get retired 
2. End of the agreement between the Partners. 
3. Where all remaining partners agree on that one partner should have to get retired from the partnership. 

Liabilities of the Retiring Partner: – 

The liabilities of the retiring partner are explained with the two situations shown as follows: –

1. Liabilities for the Acts before the date of Retirement: –

The retiring partner will be liable for acts done by the firm before the date of his retirement equally or as per partnership deed with all other remaining partners. If the remaining partners or any other third party (with whom retiring partner have any type of agreement) discharge the retiring partner from his liabilities with the written agreement. 

as per Section 32(2): –

The retiring partner remains liable for all the Acts before the date of his Retirement. However, a retiring partner may be discharged from his liability by an agreement between himself, third party and the continuing partners. 

2. Liabilities for the Acts After the date of Retirement: –

The retiring partner will be liable for acts done by the firm after the date of his retirement equally or as per partnership deed with all other remaining partners, till the public notice not issued of the retirement of retiring partner. 

as per Section 32(3): –

A Retiring partner also continues to be liable to third parties for the acts of the firm even after his retirement until public notice of his retirement is given. 

Effects of Retirement of a Partner: –

There will be the numbers of effects affecting the partnership and some of them are shown as follows: –

1. New Partnership Deed: 

There should be a new partnership Deed/agreement between remaining partners with all of new terms and condition acceptable to all partners. The old agreement will be abolished. 

2. Share of Capital and Goodwill: 

As per the agreement between the remaining partners, Remaining partner has to pay to retire partner his share of capital and goodwill in the firm as per his share of profits of the firm. 

3. Adjustment for Reserve and Accumulated profit/loss: –

The shares of the reserve and accumulated profit/loss will also be paid to retiring partners. Accumulated profit/loss in their old profit sharing ratio because these items are related to the period before retirement. 

4. Revaluation of Assets and Liabilities: –

At the time of retirement, if remaining partners decide to know the true financial position of the firm then there will need to reevaluate all assets and liabilities of the firm.

Adjustments Required in the Partnership deed: –

At the time of the retirement of the parter Following adjustment will take into consideration and these all are already explained in the previous articles, So please click on the name and check out these all article one by one. 

• Change in Profit Sharing Ratio
• Valuation of Goodwill
• Adjustment for the Reserves, Accumulated profits/losses and Deferred revenue expenses.
• Revaluation of Assets and Liabilities
• Adjustment of Capital in Partnership

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