Deed of Retirement of Partner — Format and Settlement Guide 2026

Retirement of Partner — Legal Framework

Under Section 32 of the Indian Partnership Act, 1932: a partner may retire from the firm: (a) with the consent of all partners, (b) in accordance with the partnership deed (if it provides for retirement), (c) in a partnership at will: by giving notice to all partners. The retiring partner must settle accounts with the firm — receiving the value of their share (capital + goodwill + profit share up to retirement date). The firm continues with the remaining partners.

Specimen Deed of Retirement

[Illustrative format]

DEED OF RETIREMENT OF PARTNER

This Deed is made on [Date] between:

1. [Partner 1 — Retiring] (the "Retiring Partner")
2. [Partner 2 — Continuing]
3. [Partner 3 — Continuing] (the "Continuing Partners")

WHEREAS: (a) The parties are partners in "[Firm Name]" under Partnership Deed dated [Date]. (b) The Retiring Partner desires to retire with effect from [Date], and the Continuing Partners consent.

TERMS:

1. Retirement: [Partner 1] retires from the firm with effect from [Date]. The firm continues with the Continuing Partners.

2. Capital Account Settlement: The Retiring Partner's capital account balance as on [Date] is Rs. [Amount]. This includes: (a) capital contribution: Rs. [Amount], (b) share of accumulated profits: Rs. [Amount], (c) share of goodwill: Rs. [Amount] (valued at [X] years' purchase of average profits). Total payable: Rs. [Amount].

3. Payment: The settlement amount shall be paid: (a) Rs. [Amount] on [Date], (b) balance Rs. [Amount] in [Number] monthly installments of Rs. [Amount] each, with interest at [X]% on the outstanding balance.

4. Liabilities: (a) The Retiring Partner shall NOT be liable for debts incurred by the firm AFTER the date of retirement (Section 32(3)). (b) For debts incurred BEFORE retirement: the Retiring Partner continues to be liable to third-party creditors (unless the creditors agree to release — novation). (c) As between the partners: the Continuing Partners indemnify the Retiring Partner against all pre-retirement liabilities.

5. Non-Compete: The Retiring Partner shall not carry on a similar business within [City] for [2/3] years — OR — no non-compete restriction.

6. Public Notice: The partners shall issue public notice of the retirement in the Official Gazette and a local newspaper (Section 32(4) — to relieve the Retiring Partner of liability for future firm acts).

7. Reconstituted Firm: The firm continues with revised profit-sharing: Partner 2: [X]%, Partner 3: [Y]%.

Goodwill Valuation

Common methods: (a) Average Profits × multiplier (2-3 years' purchase), (b) Super Profits method, (c) Agreed amount. The Retiring Partner receives their SHARE of goodwill based on the old profit-sharing ratio. This is a significant component — often the largest payout after capital.

Section 37 — Liability After Retirement

Under Section 36(3): the Retiring Partner continues to be liable to THIRD-PARTY creditors for firm debts incurred BEFORE retirement — UNTIL: (a) the creditors agree to RELEASE the Retiring Partner (novation — Section 32(3)), OR (b) public notice is given and the third party deals with the firm AFTER the notice. Therefore: ALWAYS publish public notice of retirement — in the Official Gazette and a local newspaper — to cut off future liability.