‘Outgoing partner’ is the partner who is leaving the partnership firm. When the partner leaves the firm either due to the retirement or due to the death, it is called as the outgoing partner. Outgoing partner is a partner who is going to leave a particular firm purposely or to he/she might be died or expelled by a firm.

Section 4 of the Partnership Act of India, of 1932 defines “Partnership” as “a relationship between individuals who agree to share the business interests of one or all of them, present on behalf of all”. And in the same way, it defines a Partner, as who enters into such a partnership with another person. In other words, general partners are people who work collectively for a common business to share profits. Now, it’s important to note what a Partnership Deed is. It is a tool that formalizes the agreed terms of a partnership by partners. It can be written or spoken, but in any case, creates a legal agreement. In this case we shall retirement of partner in a partnership firm.

Ss 32 to 38 deal with different ways in which a partner may cease to be a partner and his rights and liabilities thereafter. These provisions pertain to situations when the outgoing partner ceases to be a partner, but the firm is not dissolved and it continues with the remaining partners. A partner may cease to be a partner in the following ways:

• Retirement of a Partner (Section 32)
• Removal or Expulsion of a Partner (Section 33)
• Bankruptcy or Insolvency of a Partner (Section 34)
• Liability or Debt of deceased Partner (Section 35)

Retirement of Partner

Section 32:

Retirement of a Partner:

(1) A partner may retire –

(a) with the consent of all the otter partners,

(b) in accordance with an express agreement by the partners, or

(c) where the partnership is at will, by giving notice in writing to all the other partners of his intention to retire.

(2) A retiring partner may be discharged from any liability to any third party for acts of the firm done before his retirement by an agreement made by him with such third party and the partners of the reconstituted firm, and such agreement may be implied by a course of dealing between such third party and the reconstituted firm after he had knowledge of the retirement.

(3) Notwithstanding the retirement of a partner from a firm, he and the partners continue to be liable as partners to third parties for any act done by any of them which would have been an act of the firm if done before the retirement, until public notice is given of the retirement Provided that a retired partner is not liable to any third party who deals with the firm without knowing that he was a party.

(4) Notices under sub-section (3) may be given by the retired partner or by any partner of the reconstituted firm.

In Farrar V Defline, 1 Car & K. 580 case, the Court held that according to Section 32 (1), a partner may retire with the consent of all the other partners or with an agreement amongst the partners but if the partnership is at will, this shall be only after giving a notice in writing. A notice is however not necessary for a dormant partner until and unless the partner is known as a member of the firm to the creditors.

Liabilities of Retiring Partner:

Every partner is liable for all acts of the firm done while he is a partner. If liability has arisen during the period while a person was a partner, such liability does not come to an end by his retirement. According to s 32 (2), however, there is a possibility of discharge of the outgoing partner from liability for the past acts.

Further as per Section 32 (3) & (4), by retirement a person ceases to be a partner. The third parties can still presume mutual agency between the outgoing and the continuing partners until a public notice of retirement is given. However, if the public notice is not issued, the partners continue to be liable. In order to avoid such liability, it is in the interests of both the retiring and the continuing partners that public notice is given.

Removal or Expulsion of a Partner:

Section33:

Expulsion of a Partner:

(1) A partner may not be expelled from a firm by any majority of the partners, save in the exercise in good faith or powers conferred by contract between the partners.

(2) The provisions of sub-sections (2), (3) and (4) of section 32 shall apply to an expelled partner as if he were a retired partner.

Section 33 of the Act covers a partner’s removal. It states that partners can only be removed if the following conditions are met:

• A partner cannot be expelled from the firm by a majority of the partners except in good faith exercising the authority granted by the agreement between the partners;

• Notice has been given for the removed partner; and
• Opportunity to listen to the expelled partner.

In Blissett v Daniel, (1853) 10 Hare 493 case, where according to the partnership agreement two-third or more of the partners were empowered to expel a partner by a notice, without assigning any reason for the same. Two-third of the partners signed and served a notice of expulsion on one of them. It was found that the real reason for such a notice of expulsion was not to protect any commercial interest of the firm but that the partner sought to be expelled had opposed the appointment of a co-partner’s son as co-manager with his father. It was also found that the offended father was instrumental in managing the expulsion. It was held that notice of expulsion given under the circumstances was void.

In Carmichael v Evans, (1904) 1 Ch. 486 case, where the power to expel existed against any partner who was addicted to scandalous conduct detrimental to the partnership business or was guilty of any flagrant breach of duties relating to a partnership business. One of the partners was convicted for travelling without a ticket, and he was given a notice of expulsion by the other partner. It was held that the notice of expulsion given under these circumstances was justified.

Liability of an Expelled Partner:

The liabilities of an expelled partner are same as that of a retired partner.

Insolvency of a Partner:

Insolvent is not allowed to continue as a partner. Hence the person who is declared insolvent ceases to be a partner on the date on which the adjudication order is made. On the partner’s insolvency, whether to dissolve the firm or not it depends on a contract between the partners.

Section34:

Insolvency of a Partner:

(1) Where a partner in a firm is adjudicated an insolvent, he ceases to be a partner on the date on which the order of adjudication is made, whether or not the firm is thereby dissolved.

(2) Where under a contract between the partners the firm is not dissolved by the adjudication of a partner as an insolvent, the estate of a partner so adjudicated is not liable for any act of the firm and the firm is not liable for any act of the insolvent, done after the date on which the order of adjudication is made.

If a partner of a firm is declared bankrupt, the partnership will be suspended from the date the court order is issued, regardless of whether the firm has been liquidated in this regard. If the firm is not dissolved due to the member’s recognition of insolvency under the agreement between the members, the assets of the member recognized as such are not responsible for any actions of the firm, and the firm shall not be liable for bankruptcy We are not responsible for your actions.

Liability of an Insolvent Partner:

The estate of an insolvent partner is not liable for the acts of the firm which are done after the order of insolvency and neither the firm can be held liable for any acts once such order has been passed.

According to s 34 (2), where the firm is not dissolved on the adjudication of a partner as insolvent and the other partners agree to continue the business, the estate of the insolvent partner is not liable for an act of the firm after the date of adjudication. In his case, he is absolved from liability for future acts even though no public notice of his being adjudicated insolvent is given. His position is, therefore, different from the retired or the expelled partner, whose liability for the acts of the firm continues unless a public notice of retirement or expulsion is given. The reason why such a notice has been dispensed with is that insolvency is itself a notorious fact which is not required to be notified to anybody.

Death of Partner:

Generally, a partnership terminates on the death of a partner, but if there is a contract between the partners to continue the partnership even after the death of the partner and the firm’s business can be continued with the remaining partners.

Section35:

Liability of Estate of Deceased Partner:

Where under a contract between the partners the firm is not dissolved by the death of a partner, the estate of a deceased partner is not liable for any act of the firm done after his death.

According to Section 42(c) of the Act, subject to contract between the partners a firm is dissolved by the death of a partner. According to Section 45(1) of the Act, notwithstanding the dissolution of a firm, the partners continue to be liable as such to third parties for any act done by any of them which would have been an act of the firm, if done before the dissolution, until public notice is given of the dissolution : Provided that the estate of a partner who dies, or who is adjudicated an insolvent, or of a partner who, not having been known to the person dealing with the firm to be a partner, retires from the firm, is not liable under this section for acts done after the date on which he ceases to be a partner.

As per Section 35, on the death of a partner, a firm is dissolved but, if the other partners so agree, the firm may not be dissolved and the business of the firm may be continued with remaining partners. As regards the liability of his estate for the acts of the firm done after his death, the position is the same as in the case of an insolvent partner. If the firm is not dissolved on the death of a partner, the estate of the deceased partner is not liable for acts of the firm done after his death. An exception is a partnership consisting of only two partners where the firm shall then be dissolved. No public notice is required to be given on the death of a partner.

Rights of Outgoing Partners:

After a partner cease to be a partner, the question of the following rights of the outgoing partner or his legal representatives generally arises:

Rights to Carry on a Competing Business:

Section 36:

Right of Outgoing Partner to Carry on Competing Business:

(1) An outgoing partner may carry on a business competing with that of the firm and he may advertise such business, but, subject to contract to the contrary, he may not,—

(a) use the firm name,

(b) represent himself as carrying on the business of the firm, or

(c) solicit the custom of persons who were dealing with the firm before he ceased to be a partner.

(2) Agreements in Restraint of Trade:

The outgoing partner may carry on or advertise a competing business but is not allowed to use the name of the firm or represent himself as a partner or solicit persons he did before ceasing to be the partner of the firm. Also, he is not allowed to carry on any business similar to that of the firm within a specified period or local limits.

Right to share subsequent profits until the amount due to him has been paid:

Section37:

Right of Outgoing Partner in Certain Cases to Share Subsequent Profits:

Where any member of a firm has died or otherwise ceased to be a partner, and the surviving or continuing partners carry on the business of the firm with the property of the firm without any final settlement of accounts as between them and the outgoing partner or his estate, then, in the absence of a contract to the contrary, the outgoing partner or his estate is entitled at the option of himself or his representatives to such share of the profits made since he ceased to be a partner as may be attributable to the use of his share of the property of the firm or to interest at the rate of six per cent. per annum on the amount of his share in the property of the firm:

Provided that where by contract between the partners an option is given to surviving or continuing partners to purchase the interest of a deceased or outgoing partner, and that option is duly exercised, the estate of the deceased partner, or the outgoing partner of his estate, as the case may be, is not entitled to any further or other share of profits, but if any partner assuming to act in exercise of the option does not in all material respects comply with the terms thereof, he is liable to account under the foregoing provisions of this section.

If a member of the firm dies or otherwise ceases to be a partner of the firm, and the remaining partners carry on the business without any final settlement of accounts between them and the outgoing partner, then the outgoing partner or his estate is entitled to share of the profits made by the firm since he ceased to be a partner.