Table of Contents
- Modes of Introduction of a Partner
- Expulsion of a Partner
- Insolvency of a Partner
- Death of a Partner
- Retirement of a Partner
- Rights of an Outgoing Partner
MODES OF INTRODUCTION OF A PARTNER
Section 31 of the Indian Partnership Act, 1932, deals with the following rules of introduction of a partner in a partnership firm:
- Consent of All Partners: A new partner can only be introduced with the unanimous consent of all existing partners.
- As per Existing Contract: If there’s a contract that allows for admission without unanimous consent, it is valid.
- Minor Becoming a Partner (Section 30): A minor admitted to the benefits of the partnership may choose to become a full partner upon attaining majority.
EXPULSION OF PARTNER
Section 33 lays down the following conditions for expelling a partner:
- There must be a contractual provision allowing expulsion.
- The expulsion must be done in good faith.
An expulsion done out of rivalry or malice is not valid in law.
INSOLVENCY OF PARTNER
As per Section 34, if a partner is adjudicated insolvent, they cease to be a partner from the date of the court order.
- The firm is no longer responsible for their actions, and vice versa.
- Whether the firm dissolves upon insolvency depends on the partnership agreement.
DEATH OF PARTNER
Section 35 provides that when a partner passes away:
- Their estate is not liable for firm’s actions after their death.
- The firm may continue only if surviving partners or a contract allows it.
RETIREMENT OF A PARTNER
Section 32(1) defines the following ways in which a partner can retire:
- With the consent of all other partners
- In accordance with express agreement by partners
- Where the partnership is at will, by giving notice in writing to all the other partners of his intention to retire.
Discharge from Liability
When a partner retires from a partnership, they can be released from responsibility for any actions the partnership took before they retired. This release happens if all three parties agree:
- The retiring partner.
- The remaining partners in the reformed partnership.
- The third party (e.g., a creditor or customer).
This agreement can be written, spoken, or understood through actions. For example, if the third party continues to work with the new partnership after knowing about the retirement, it might imply they accept the retiring partner’s release from liability.
RIGHTS OF AN OUTGOING PARTNER
When a partner exits the firm—whether through retirement, death, or otherwise—they retain certain rights under the Act.
1. Right to Carry on a Competing Business (Section 36)
Section 36 of the Indian Parntership act provides that an outgoing partner is allowed to start a business competing with the firm and may even advertise that business. However, this right is subject to the following three restrictions:
- Cannot use the firm’s name – The new business must operate under a different name and the partner cannot use the firm`s name.
- 🚫 Cannot represent themselves as continuing the old firm’s business – The partner cannot represent himself as carrying on the business of firm.
- 🚫 Cannot solicit the firm’s existing customers – The partner cannot solicit the customers or persons dealing with the firm. He cannot approach the old customers to persuade them to be diverted to his business.
Note: These rights may be further limited if a restraint of trade agreement is signed with the continuing partners.
2. Right to Share in Subsequent Profits or Interest (Section 37)
If an outgoing partner (or a deceased partner’s representative) has not received their share of the firm’s property, they have two legal options:
- Claim a share of the profits – They may ask for the portion of profits earned using their share of the firm’s assets.
- Claim interest at 6% per annum – Alternatively, they can demand simple interest at the rate of 6% p.a. on the outstanding amount.
This gives the outgoing partner a choice between variable earnings (profits) or stable income (interest).
Exception: If an outgoing partner sells their share to a continuing partner, they forfeit the right to future profits or property—beyond the sale amount agreed.
References:
- Indian partnership Act, 1932- Bare Act
- Law of Contract-I by R.K. Bangia
