Notice of Retirement From Partnership Firm

A notice of retirement from partnership firm allows a partner to give notice of their intent to leave the partnership.3 min read

A notice of retirement from partnership firm allows a partner to give notice of their intent to leave the partnership. By writing out their notice, the retiring partner will be protected from any future liabilities related to the partnership. In addition, the partnership will be protected from any future liabilities related to the retiring partner.

If a retiring partner decides to quit a partnership but does not follow the procedures outlined in the partnership act of the state or territory in question, then the retiring partner might still technically be a member of the partnership. If so, they could be held responsible for future liabilities involving the partnership.

The Indian Partnership Act of 1932

For an example of the requirements of a partnership act, look to the Indian Partnership Act of 1932. This act has several principles in section 32(1) that define how a retiring partner should proceed.

  1. Every partner in the partnership has the right to retire as long as they give notice to the other partners.
  2. If the partner is retiring from a registered firm, they will need to announce their retirement in three different ways:
    • In the Registrar of Firms.
    • In the Official Gazette.
    • In a vernacular newspaper that's distributed where the partnership conducts business.
  3. The retiring partner should create a deed of retirement that further defines the conditions and terms of their retirement.
  4. Overall, there are two main mandatory factors before a partner can retire:
    • They must alert the other members of the partnership about their retirement.
    • They must send a retirement notice as well as Form 18 to the Institute of Chartered Accountants of India. This process ensures the retirement is officially registered in this organization's records.
  5. Once these steps are complete, the retiree needs to sign their retirement deed along with the other remaining partners, as required by section 32(3) of the Indian Partnership Act. Keep in mind that without a deed of retirement, a retiring partner will still be liability to third parties even if that liability is taken over by the remaining partners. The deed of retirement protects the partner by forcing the remaining partners to cover liability in instances related to the partnership.

What Might Be Included in a Partnership Agreement

The above example of the Indian Partnership Act is only legal in that country. Other countries, states, and companies have their own partnership agreements with other guidelines. If your company decides to create a partnership agreement, it may include some of the following information:

  • The address and name of the retiring partner.
  • Any relevant information about the partnership.
  • All of the addresses and names of the partners who will remain after the retiring partner leaves.

After creating the document, you'll need to provide a copy to each partner. Details for how you should provide the document to every partner can be included in the partnership agreement itself. Acceptable methods typically include:

  • Mail.
  • Hand delivery.
  • Registered mail.
  • Email.
  • Other electronic methods.

In some cases, you may even need to provide the document to a relevant third party.

Overall, it's up to the firm to decide the exact requirements of the partnership agreement. For example, a partnership can decide to give themselves the ability to continue working with their client base with no transition time, pay deferred comp to the retiree or retirees, and keep compensating the retirees at a partner level. However, these types of agreements can often be one-sided, so always think carefully before agreeing to specific terms.

How to Alert the Public of Your Retirement

Another common factor in retirement partnership agreements is the requirement to announce to retirement publicly. This is known as a notice of resignation from partnership. It's often necessary so third parties who work with the partnership know the retiring member will no longer be involved.

If you're publishing notice in a newspaper or gazette, you will have to follow a particular procedure for size and length of the notice (most likely established in the partnership agreement or by the publication you're posting the notice in). While this will cost a small advertising fee, it shouldn't be a detriment to the retiring partner.