Study Material & Notes for the Chapter 6
Partnership - Retirement of Partner
I. RETIREMENT – MEANING AND BASIC CONCEPTS
A. Meaning of Retirement of a Partner
When one or more partners leave the firm and the remaining partners continue to do the business of the firm is called Retirement of a Partner. Retirement of a partner means that the partner ceases to be a partner of the firm. It results in reconstitution of the firm by which old partnership comes to an end and a new partnership among the continuing (remaining) partners comes into existence.
Due to retirement, the existing partnership comes to an end and the remaining partners form a new agreement and the partnership firm is reconstituted with new terms and conditions. At the time of retirement the retiring partner’s claim is settled.
C. Different ways a Partner may retire:
- With the consent of all partners (If all other partners agree to this retirement)
- As per the terms of the agreement (If there is an agreement to that effect…say partner will retire on 31-Mar-2022). The terms and conditions of retirement of a partner are normally provided in the partnership deed. If not, they are agreed upon by the partners at the time of retirement.
- At his/her own will i.e. If he/she has given his/her consent in writing to retire
D. Liability of the Retiring Partner - for the acts before Retirement Section 32(2)
- A retiring partner remains liable for all the acts of the firm up to 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
E. Liability of the Retiring Partner - for the acts after Retirement 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 a public notice of his retirement is given.
- A public notice is served either by way of a notification in the Official Gazette or published in a English & Hindi Newspaper
F. Accounting issues at the time of Retirement
- Determination of New Profit Sharing Ratio and Gaining Ratio
- Adjustment for Goodwill
- Treatment of Reserves & Losses
- Revaluation of assets and liabilities
- Settlement of retiring partner’s dues
- New Capital of the Continuing partners