Retirement of a Partner in Pakistan: Legal Provisions and Procedure
Under Pakistani law, the retirement of a partner from a partnership is governed by the Partnership Act, 1932. This Act lays down specific rules and procedures that partners must follow to ensure a smooth transition and legal compliance when one of the partners decides to retire. Below is a detailed overview of the relevant provisions.
Conditions for Retirement
According to Section 32 of the Partnership Act, 1932, a partner may retire from a firm under the following conditions:
- With the Consent of All Partners: Retirement can take place if all existing partners agree to the retirement.
- In Accordance with an Express Agreement: If there is an express agreement in place between the partners regarding retirement, a partner may retire in accordance with the terms of that agreement.
- Partnership at Will: In a partnership-at-will, a partner may retire by giving notice in writing to all the other partners of his intention to retire .
Discharge of Liability
A retiring partner can be discharged from any liability for acts of the firm done before his retirement through an agreement made with the third party and the continuing partners. Such an agreement may also be implied by a course of dealing between the third party and the reconstituted firm, provided the third party has knowledge of the retirement .
Continuing Liability
Even after retirement, a partner and the continuing partners are liable to third parties for any act done by any of them that would have been an act of the firm if done before the retirement, until public notice of the retirement is given. However, a retired partner is not liable to any third party who deals with the firm without knowing that he was a partner .
Public Notice
Public notice of the retirement must be given to absolve the retiring partner of liabilities. Notices can be given by either the retired partner or any partner of the reconstituted firm .
Rights of Outgoing Partner
An outgoing partner has the right to carry on a business competing with that of the firm but cannot:
- Use the firm name.
- Represent himself as carrying on the business of the firm.
- Solicit the customers of the firm, unless there is a contract stating otherwise .
Furthermore, an outgoing partner or his estate is entitled to a share of the profits made by the firm after his departure, attributable to the use of his share of the firm’s property, or to interest at 6% per annum on the amount of his share in the property of the firm .
Procedure for Retirement
To retire from a partnership, the following steps are typically taken:
- Notification to Partners: The retiring partner should inform all other partners in writing.
- Public Notice: A public notice should be published in the local official gazette and a vernacular newspaper circulating in the district where the firm has its principal place of business.
- Settlement of Accounts: Accounts should be settled as per the partnership agreement or, in the absence of an agreement, as per the provisions of the Partnership Act, 1932.
Legal Implications
Failure to comply with the statutory requirements for retirement can result in continued liability for the retiring partner. Hence, it is imperative to follow the prescribed procedures meticulously to avoid any legal complications.
For comprehensive legal advice and assistance with the retirement process from a partnership, it is advisable to send us an email at [email protected]
