This article covers all aspects of the retirement of a partner in India, including core concepts, the legal framework, essential clauses in a retirement deed, and most importantly, a step-by-step guide on how to draft a retirement deed. Whether you’re a lawyer new to partnership law or a practitioner looking to sharpen your drafting skills, this is your one-stop guide.

Introduction

As a lawyer practicing in Mumbai, the financial capital of the country, I have come across many businesses from the workshops of Dharavi to posh offices at Lower Parel.

I have been fortunate to deal with different partnership businesses and gained insightful knowledge and experience in drafting different types of documents required in partnership.

One fine day, I got a call from Meera of Lotus Crafts. “Urvi, Rohan’s retiring to open a café in Goa,” she said.

Meera, Rohan, and Kavita run a flourishing handicraft export partnership, and Rohan’s exit needed careful handling to settle his share and keep the business steady. 

“Can you draft the paperwork?” she asked. I agreed to take up the work and sought the necessary details to draft a deed of retirement. I explained the relevant clauses of the retirement deed over the call to her, and she seemed relieved.

This brings us to Part 2 of our series of learning different deeds of partnership.

Earlier, in drafting a partnership deed, we learnt how to draft a deed of partnership for Naresh uncle to open his sweet shop with his partners.

In this blog, I will walk you through the drafting process of a deed of retirement and clear all concepts related to the retirement of a partner.

Are you excited? Let us begin.

What is the legal framework governing retirement from a partnership?

The retirement of a partner is governed by section 32 of the Indian Partnership Act,1932.

According to section 32(1) of this Act, a partner of a partnership firm may retire:

1. With the consent of all the other partners of that partnership firm,

A partner can retire if all other partners in the firm explicitly agree to their retirement. This requires unanimous consent from the remaining partners,

2. In accordance with an expressed agreement in this regard by the other partners of the partnership firm

 A partner may retire based on a pre-existing agreement or clause in the partnership deed that outlines the terms and process for retirement.

3. In case of partnership at will, by serving a written notice to all the other partners of the firm, conveying his intention of retiring.

 In a partnership at will (a partnership with no fixed duration or dissolution terms, as defined in section 7), a partner can retire by providing written notice to all other partners, expressing their intent to leave. No additional consent is required, but the notice must be clear, in writing, and delivered to each partner.

Let us now understand the rights and liabilities of a retiring partner.

What are the rights and liabilities of a retiring partner?

Section 36 of the Indian Partnership Act enumerates that a retiring partner has the right to start a competing business and advertise it, provided they do not misuse the firm’s name, represent the firm, or solicit its clients.

For example, Rohan could launch a new handicraft business in Goa but cannot claim affiliation with Lotus Crafts or contact its export clients without agreement.

The retiring partner may enter into a non-compete agreement with the continuing partners, restricting them from engaging in a similar business within a specified geographic area or time period. Such restrictions must be reasonable. For instance, a clause preventing Rohan from operating a handicraft business within 20 km of Lotus Crafts for two years is likely enforceable, as it is limited in scope and duration.

According to section 37, if the partnership firm continues after a partner retires, the retired partner (or his legal representative) is entitled to:

• A share of the profits attributable to his share of the property, or
• Interest at 6% p.a. on the amount due until final settlement.

For example, if Rohan retires and her capital account shows ₹5 lakh is owed to her. If the firm does not settle immediately, she can demand 6% annual interest until they pay up.

Coming to the liabilities of a retiring partner.

1. Liability for acts before retirement

According to section 32(2) of the Act, the retiring partner shall be liable for all acts of the firm done prior to his retirement.

For example, the firm borrowed ₹10 lakh from a third party before Rohan’s retirement for setting up a new store. If repayment is due later, Rohan is still liable for that loan to that third party.

However, a retiring partner can be discharged from liabilities incurred during their tenure through novation i.e. a new agreement involving the third party, the retiring partner, and the continuing partners. In practice, novation is rare due to the difficulty of securing the consent of the third party.

Such an agreement may be implied by a course of dealing between such third party and the reconstituted firm after he had knowledge of the retirement.

2. Liability for acts after retirement (if no public notice)

According to section 32(3) of the Act, unless the retiring partner gives public notice of retirement, he continues to be liable to third parties who deal with the firm under the assumption that he is still a partner.

For registered firms, public notice must be published in the Official Gazette, at least one vernacular newspaper circulating in the district of the firm’s principal place of business, and filed with the Registrar of Firm.

This brings us to the next question: What is a deed of retirement?

What is a deed of retirement? 

When a partner voluntarily exits the partnership, ceasing to be liable for its future acts or entitled to its profits, the partners execute a deed on certain terms to formalise the exit of a partner from the partnership, which is known as a deed of retirement.

Unlike dissolution, which ends the partnership, retirement allows the firm to continue with the remaining partners, provided the partnership deed permits or the partners agree to continue the partnership.

It serves as a binding contract that outlines the terms of retirement, financial settlements, liability protections, outlining the rights and obligations of both the retiring partner and the continuing partners and the continuation of the firm. 

But why is it necessary? Let us find out.

Why is a retirement deed necessary? 

The deed is essential to:

• Document the consent to the retirement to prevent misunderstandings among partners.
• Protect the retiring partner from future firm liabilities post-public notice.
• Enable the continuing partners to maintain and continue the business operations.
• Notify third parties (e.g., clients, banks, creditors) of the partnership change to maintain transparency and statutory compliance.

Let us now look at the key components of a retirement deed.

What are the key components of a retirement deed?

The key components of a deed of retirement are as follows: 

1. Details of the partners

The deed shall consist of the name and address of the retiring partner and continuing partners, for the purpose of proper identification.

2. Name of the partnership firm

The name of the partnership firm shall be mentioned in the recitals of the deed. You may also include the type of business of the firm in the recitals.

3. Effective date of retirement and consent of continuing partners

You should also mention the date on which the partner’s retirement takes effect in the recitals and the consent and agreement of all parties to execute the deed of retirement to record the terms and conditions in respect thereof.

4. Contribution and settlement

You need to mention the retiring partner’s capital contribution and the financial settlement for their share, including capital, profits, and goodwill, with payment terms.

5. Assignment of shares and assets

You confirm the transfer of the retiring partner’s share, goodwill, and assets to the continuing partners.

6. Liability Release and Indemnification

The deed must protect the retiring partner from future liabilities post-public notice and clarify responsibility for existing debts, with mutual indemnification for undisclosed liabilities.

7. Continuation of partnership and new profit and loss sharing

The deed should confirm that the continuing partners will carry on business with the new profit and loss sharing ratio for the continuing partners post-retirement, which reflects the reallocation of the retiring partner’s share.

8. Duties and responsibilities of continuing partners

 You need to set out the continuing partners’ duties, particularly if a working partner is designated, to clarify roles post-retirement, along with their remuneration in compliance with tax laws.

9. Tax liabilities

The deed clarifies about the payment of tax responsibilities of the individual as well as the firm upto the date of retirement.

10. Capital and interest provisions

The deed specifies fixed capital, additional capital, and the interest that the partners receive on their capital contributions at a rate agreed upon in compliance with tax laws.

11. Public notice

The deed should mandate a public notice of retirement, published in the state gazette and newspapers, as well as intimating the change to the Registrar of firms for the purpose of informing third parties and also about no further liability of the retiring partner for future acts.

12. Dispute resolution

The deed shall include provisions for resolving disputes amicably or through alternate modes like arbitration if amicable resolution fails.

13. Miscellaneous clauses

You can add clauses for confidentiality to protect sensitive information, requiring mutual consent for any amendments. To safeguard the firm’s goodwill, the deed may include a non-compete clause restricting the retiring partner from engaging in a similar business within a reasonable geographic area and time period. 

Now that you know the components, let us draft the deed of retirement.

How to draft a retirement deed? 

I will teach you to draft using an example where one Mr. Anil Chopra has decided to retire from a partnership firm under the name of M/s.Sunrise Textiles and the other two partners, Deepak E. Fernandez and Gaurav H. Iyer, have decided to continue the partnership business. The partners have decided to execute a deed of retirement on certain terms and conditions, which we will look at in the deed.

Let us begin

Explanation: The opening sentence describes the nature of the document as a Deed of Retirement and specifies when and where the deed is being made and executed between the partners. This also introduces the parties to the deed along with their names and addresses, to ensure clear identification. The inclusion of heirs, executors and assigns is necessary to ensure the continuation of the partnership and also to extend the terms of the deed to them.

THIS DEED OF RETIREMENT made and entered into at Mumbai this 20th day of August 2024

 BETWEEN 

Anil B. Chopra of Mumbai, Indian Inhabitant, having address at Flat No. 12, Sunshine Towers, Lokhandwala Complex, Andheri West, Mumbai-400053 (which expression shall unless it be repugnant to the context or meaning thereof, include his heirs, executors, administrators, legal representatives and assigns), hereinafter called “The Retiring Partner” of the One Part;

AND

(1) Deepak E. Fernandez and (2) Gaurav H. Iyer, both of Mumbai, Indian Inhabitants, having their address at 25, Blue Horizon Apartments, Juhu Tara Road, Juhu, Mumbai-400049 (which expression shall unless it be repugnant to the context or meaning thereof, include their respective heirs, executors, administrators, legal representatives and assigns) hereinafter called “The Continuing Partners” of the Other Part;

Explanation: You then start writing what is known as recitals. They begin with “Whereas” and it begins by stating that the parties are carrying on business in partnership under a partnership deed. Further, it specifies the partners’ shares, the effective date of retirement and the intention of the continuing partners to carry on the partnership business. Finally, it sets out the intention of the partners to execute this deed to record the terms and conditions of the retirement of one of the partners. It is necessary to provide the background and context for executing this deed so that all parties understand the circumstances that led them to execute it.

WHEREAS

(a) The Parties hereto are carrying on business in the firm name and style of M/s.Sunrise Textiles upon the terms and conditions contained in the Deed of Partnership dated 1st April 2015.

(b) The Shares of the Partners in the said partnership are as follows:- 

(1) Anil B. Chopra-33.33% Share 

(2) Deepak E. Fernandez-33.33% Share 

(3) Gaurav H. Iyer-33.34% Share

(c) It was mutually agreed between the parties hereto that the Retiring Partner shall retire from the said Partnership Business with the close of business on 19th day of August 2024 i.e. with effect from 20th August 2024 upon the terms and conditions agreed to between parties and the Continuing Partners have agreed to continue the said business in partnership between them.

(d) The parties hereto are desirous of reducing to writing the said terms and conditions.

NOW THIS INDENTURE WITNESSETH AS FOLLOWS:-

Explanation: This clause is included to formalise the retirement of the partner from the firm, clarify the date of retirement, and ensure the continuation of the business by the continuing partners to prevent any misunderstanding.

1. In pursuance of the said agreement in this behalf, the Retiring Partner doth hereby retire from 20th day of August 2024 from the said partnership hitherto existing between them and do hereby mutually covenant that they the said Continuing Partners will hence forth be and remain partners in the said business and continue the said partnership business between themselves upon the terms and conditions agreed upon between them.

Explanation: This clause states that the partnership accounts up to the close of business have been mutually settled and adjusted between the partners. The purpose of this clause is to confirm that the accounts of the firm up to the date of retirement have been reviewed by the partners to prevent any future disputes over the past accounts.

2. Accounts of the said partnership for the period upon the close of the business on 19th August 2024 have been mutually made up, adjusted and settled between the parties hereto.

Explanation: This clause specifies that continuing partners will pay an amount as a full and final settlement of all the claims of the retiring partner in the capital, profits, and assets of the partnership. This clause specifies a full and final payment to avoid any future claims, thereby protecting the interests of the retiring partner and the financial obligations of the continuing partners towards the retiring partner.

3. The Continuing Partners have agreed to pay the Retiring Partner a sum of Rs. 25,00,000/- (Rupees Twenty-Five Lakh only) including the amount standing to his credit in the books of account as on 19th August 2024 in full and final settlement of all his claims in the capital, profits and assets of the partnership.

Explanation: This clause confirms retirement from a particular date, as well as the assignment and release of the share of the retiring partner in favour of the continuing partners. It ensures that the retiring partner has no further rights in the partnership, vesting all assets in the continuing partners. This helps safeguard the business operations and protects the continuing partners from future claims or interference from the retiring partners.

4. The Retiring Partner doth hereby retire from the said partnership as from 20th August 2024 and assign and release unto the Continuing Partners his share and interest in the said business and goodwill thereof together with all movable and immovable assets of the Partnership including factory land and building, stock-in-trade, moneys, credits and effects belonging thereto TO HOLD the same unto the continuing partners absolutely together with all benefit of outstanding contracts. Henceforth, the Retiring Partner shall have no right, title and interest of whatsoever nature in the partnership and/or its assets thereof. All the assets of the Partnership shall vest in the Continuing Partners alone.

Explanation: This clause confirms the intention of the continuing partners to carry on the business after the retirement of the retiring partner, which provides an assurance that the business will proceed without interruption under the management of the continuing partners.

5. The continuing partners shall continue the said business of the partnership from 20th day of August 2024.

Explanation: This clause mutually releases all the partners from prior partnership covenants, except those mentioned in this deed or the Partnership Deed. The purpose of this clause is to minimise the risk of any future legal disputes or claims that may arise from any acts or deeds in relation to the partnership prior to the retirement.

6. In consideration of the premises at hereinstated the Retiring Partner doth hereby release the Continuing Partners and each of them and the Continuing Partners do and each of them doth hereby release the Retiring Partner of and from all covenants save and except herein made, and provisions contained in the said Indenture of Partnership dated 1st April 2015 and all actions, claims and demands in relation to the said partnership.

Explanation: This clause states that no partner has incurred undisclosed debts for the partnership beyond those recorded in the books, and it also stipulates that the partners agree to indemnify each other against such liabilities. This clause safeguards the partners by holding each other liable or accountable for any debts that were not recorded in the books of account. It promotes transparency and accountability among the partners regarding the debts or liabilities that may have been incurred by them.

7. The Retiring Partner doth and also the Continuing Partners do and each of them doth hereby declare that none of them have at any time borrowed any money or incurred any debts for and on account or on behalf of the partnership save and except those that are entered in the books of account of the partnership and they agree to keep indemnified the other or others of them against all actions, suits, proceedings and costs, charges and expenses in respect of any liability not entered in the books of account.

Explanation: This clause outlines that each partner is responsible for their income tax liabilities on partnership profits up to the date of retirement, and the firm will pay income tax after these deductions. This clause is necessary to comply with legal requirements and to prevent disputes about the tax obligations of the partners in the future.

8. The respective partners shall duly pay and discharge their income-tax liabilities on their respective shares in the partnership and the profits thereof upto 19th August 2024. The Firm shall pay income tax on the income after deducting all permissible deductions, as also after deducting interest paid to partners and also after deducting salary to working partners. The Retiring Partner and Continuing Partners shall pay income tax on the interest and remuneration earned and credited to their respective capital accounts.

Explanation: This clause requires each partner to pay their personal debts and indemnify others against such liabilities, including taxes. This clause is necessary to ensure that each partner is solely responsible for their personal debts and liabilities, thereby protecting the other partners from being held liable for such debts.

9. Each partner shall pay his or their respective personal debts and liabilities, including liabilities for payment of taxes as aforesaid and shall indemnify and keep indemnified one another from payment of the same and from all claims, demands, actions, proceedings, costs, charges and expenses in connection therewith or relating thereto.

Explanation: This clause declares that no other dues exist between the partners beyond those in this deed. This clause is included for the purpose of confirming that all financial obligations between the parties have been settled as per the terms of this deed in order to eliminate the possibility of future claims against undisclosed dues.

10. The Parties hereto declare that, save as provided herein, there is nothing due and owing by either party to the other in respect of the said partnership or its outstanding credits and effects.

Explanation: This clause appoints the continuing partners as attorneys of the retiring partner to ensure smooth management for the continuing partners. It allows the continuing partners to have full control over the business and resolve all outstanding financial matters of the firm without the involvement of the retiring partner.

11. The Retiring Partner doth hereby irrevocably appoint Continuing Partners jointly and severally as his Attorneys and solely at the cost of the Continuing Partners to collect all assets, property, credits and debts of the partnership and to ask, demand, sue for, recover and receive and to sign and give full and effectual receipts and discharges for all and singular the debts, estate and effects of or due or owing or in anywise belonging to the partnership and to settle all accounts, reckonings, matters and things whatsoever relating thereto and to compound or release all or any of the debts or claims belonging to the partnership and to institute any actions or other proceedings for compelling payment discharge or delivery thereof and for any of the purpose aforesaid from time to time appoint a substitute or substitutes and at any time to remove any substitute and generally to do all such acts or things as may be necessary or expedient for the purpose of vesting the premises hereby assigned to the Continuing Partners.

Explanation: This clause obligates the retiring partner to execute further acts to ensure that the business and the assets are transferred to the continuing partners. It is necessary to prevent any delay or disputes between the partners and also to effectively transfer the business and the assets of the firm in favour of the continuing partners absolutely.

12. The Retiring Partner doth hereby covenant that he shall and will from time to time and at all times unconditionally, hereafter at the request of the Continuing Partners will do and execute or cause to be done and executed all such further acts, deeds, things and assurances in law whatsoever for the better and more perfectly assuring the said business and premises and for part thereof unto and to the use of the Continuing Partners in manner aforesaid as by the Continuing Partners shall be reasonably required.

Explanation: This clause requires continuing partners to indemnify the retiring partner against future business claims. This clause is included in order to protect the retiring partner from any future liabilities that may arise from the business after his retirement, thereby confirming that the full responsibility of the continuing partners for any claims or costs related to the business after the retirement.

13. The Continuing Partners do hereby covenant with the Retiring Partner that they will indemnify him against any claim, cost, charges and expenses relating to the business which will be carried on by the Continuing Partners and any claim relating to the continuing partnership.

Explanation: This clause specifies that continuing partners will share profits and losses equally in the new partnership. It is necessary for legal compliance and also to provide clarity on the financial structure amongst the continuing partners in the partnership.

14. The Continuing Partners shall share the profits and losses in the newly constituted partnership after payment of interest of Partners Capital/Current/Loan Account and remuneration to the Working Partner, if any, as above and/or in accordance with any subsequent variations hereof and/or as worked out in accordance with the provisions of Income Tax Act, 1962 and or any statutory modification or re-enactment thereof as may be in force from time to time, and the same shall be divided between the parties hereto as under:- 

(a) Deepak E. Fernandez-50% share 

(b) Gaurav H. Iyer- 50% share

Explanation: This clause states that the original partnership Deed remains binding on the continuing partners, except as modified by this Deed. It is necessary to maintain the continuity of the original terms and conditions agreed upon between the partners and to clarify the terms and conditions that will govern the partnership firm and the partners.

15. As far as the Continuing Partners are concerned, all the terms and conditions of the Partnership recorded in the Deed of Partnership dated 1st April 2015 shall be binding on them save and except the modifications hereto.

Explanation: This clause designates one of the continuing partners as the working partner, who will be entitled to remuneration based on book profits per the Income Tax Act, 1961, to incentivise the active management in the partnership business. It is advisable to check the maximum deductions that can be availed in respect of the remuneration payable to working partners, since the provision may be amended.

16. SHRI Deepak E. Fernandez, the party of the First Part (hereinafter referred to as Working Partner) shall devote such time and attention in the conduct of the Partnership business as the circumstances and the business needs may require. In consideration thereof, the Working Partner shall be entitled to the remuneration as mentioned hereinafter. No fixed remuneration shall be paid, however it shall be in accordance with the provisions of Income Tax Act, 1961. The aggregate remuneration payable to the working Partner every year shall be in the following ratio:

(a) On the first Rs.3,00,000 of the book-profit, or in case of a loss Rs.1,50,000 or at the rate of 90 percent of the book profit, whichever is more;

 (b) On the balance of the book-profit at the rate of 60 percent;

The parties are at liberty to modify the remuneration payable to each of the partners in accordance with the provisions of Income Tax Act 1961.

Explanation: This clause sets the fixed capital and contains provisions for additional capital or loans, subject to the mutual consent of the parties. This is necessary to ensure that the partnership has sufficient funds to operate the business. By requiring mutual consent, it promotes collective decision and transparency amongst the partners.

17. The Fixed Capital of the business shall be Rs. 75,00,000/- (Rupees Seventy-Five Lakhs only). Further Capital required for the business shall be brought in by the parties hereto as may be mutually decided. Further Capital required for the Partnership business may be borrowed either from the Banks or Private arrangements and/or any Government Institutions on such terms as to payment of interest as may be mutually agreed. Further, the amounts should be raised with the consent of all the parties hereto.

Explanation: This clause sets the interest rate on partner accounts, which shall be adjustable per the Income Tax Act, 1961 in order to incentivise the investment in the partnership.

18. Simple interest at the rate of 12% per annum or at such other rate as may be mutually agreed upon or at such rate not exceeding rate as may be prescribed by the Income Tax Act in Section 10(b) or such other statutory modifications or re-enactment thereof as may be in force from time to time, shall be payable on the amounts standing to the credit of Capital Account, Loan Accounts or Current Accounts of the Partners, from time to time, with effect from 20th August 2024.

Explanation: This clause allows modification of interest or remuneration via a Supplementary Deed, as permitted by the Income Tax Act, 1961. This clause allows flexibility to the partners to adjust interest or remuneration by way of mutual agreement in accordance with regulatory laws.

19. The parties hereto shall be entitled to provide for or vary the amount of interest/remuneration payable and/or the proportion in which the remuneration shall be divided between the Working Partner as also to add to or to remove from the working of the Partnership business any of the Partners by a mutual agreement, to freshly determine the total remuneration payable to the Working Partner from time to time by executing a Supplementary Deed of Partnership. Provided that such change shall be effective from the date of such Deed and/or such other date as may be permissible under the provisions of Income-tax Act, 1961 or such other statutory modification or Re-enactment thereof as may be in force for the time being.

Explanation: This clause mandates notification of the change in the partnership in the gazette, newspaper, and to the Registrar of Firms. This clause ensures compliance with the Indian Partnership Act, which mandates giving public notification of the retirement of the partner in order to inform the public about such a change.

20. That the parties hereto shall give due intimation of the change to the Registrar of Firms and also advertise in the official gazette and in the local newspapers about the fact of retirement as required by the Indian Partnership Act, and sign the papers necessary thereof.

Explanation: This clause is a dispute resolution clause to resolve the differences or disputes among the partners. The partners may first try settling by mutual discussions, and if that fails, an arbitrator may be appointed.

21. Any differences or disputes whatsoever which shall arise between the parties hereto touching these presents or the constructions or application thereof or any clause or things herein contained or any account, valuations, divisions, debts or liabilities to be made hereunder or as to any act, deed or omission of any partner or as to any other matter in any way relating to the partnership business of the affairs or the rights, duties, liabilities of any persons under these presents shall be resolved amongst the parties hereto by mutual discussion, understanding and consent and if necessary with the help and guidance of the well wishers within 15 days, failing which the the parties shall be entitled to refer the dispute to a sole arbitrator appointed by mutual consent. If parties fail to appoint an arbitrator, either party may approach a competent court under section 11 of the Arbitration and Conciliation Act,1996, for the appointment of an arbitrator. The place of arbitration shall be Mumbai and the arbitration shall be conducted in English language with costs of the arbitration to be borne by the parties equally.

Explanation: This clause records the signature of the parties in the presence of witnesses to authenticate the agreement.

IN WITNESS WHEREOF, the parties hereto have hereunto set and subscribed their respective hands the day and year first hereinabove written.

This was simple right?

Once you understand the key components of this deed, you can draft one with ease.

Moving on to understand the stamp duty and registration requirements.

What are the stamp duty and registration requirements for a deed of retirement?

The stamp duty would differ from state to state. 

As far as the State of Maharashtra is concerned, as per Article 47 of the Maharashtra Stamp Act, 1958, a retirement deed that involves the transfer of immovable property, the stamp duty shall be calculated on the market value of the property at the rate of 6%(5% stamp duty + 1% metro cess). In all other cases, the stamp duty shall Rs.500/-

In case of registration of the retirement deed, the same is optional unless it involves a transfer of an immovable property, in which case the deed has to be registered under section 17(1)(b) of the Registration Act,1908.

Conclusion

With clarity on these concepts, you will become the go-to person to draft a comprehensive deed of retirement for your clients. By incorporating essential components like financial settlements, assignment of assets, and provisions for public notice, you can protect the interests of the retiring as well as continuing partners. Ensure to practice drafting this deed regularly and stay up to date with the latest developments in partnership laws.

FAQs

1. What happens if a retiring partner dies before the retirement deed is executed?

If a partner dies before executing the retirement deed, the retirement does not take effect, and the firm shall stand dissolved unless it was agreed under the partnership deed that the firm shall not dissolve in the event of the death of a partner.

2. How should goodwill be valued in a retirement deed to avoid disputes?

The Indian Partnership Act, 1932, does not prescribe any method for valuing the goodwill of the firm. Therefore, the partners must mutually agree upon a method to do so.

The common methods to value the goodwill are as follows:

• Average profits method: In this method, the goodwill is calculated as a multiple of the average annual profits over a specified period.

For example, if the average profit of a firm is Rs. 2,00,000/-, the goodwill may be valued at Rs. 6,00,000/- if we take a multiple of 3..

• Super profits method: In this method, the goodwill is based on the excess profits that a firm earns over and above the normal expected profits on the capital employed

 For instance, if normal profits are Rs. 1,00,000/-, but actual profits are Rs. 1,50,000, the super profit of Rs. 50,000 may be multiplied by a factor to determine the goodwill of the firm.

• Professional appraisal: A chartered accountant or valuer assesses the goodwill based on the market conditions, performance of the business, and industry standards.

3. Can the retiring partner be restricted from starting a competing business?

Yes, a retiring partner can be restricted from carrying on a similar business competing with the firm, provided the restrictions are reasonable and not in restraint of trade.

4. Can payments to a retiring partner be made in installments?

Yes, the retiring partner can be paid in instalments towards his share of capital, profits and goodwill,  if it is mutually agreed between the partners. In such cases, it is advisable to specify the date and the number of instalments in the deed to avoid any confusion.

5. How can one ensure that the retirement deed is enforceable against third parties such as banks or clients?

The partner must issue a public notice as mentioned earlier in accordance with section 32(3) of the Act. Moreover, such notice must also be given to banks, government departments, and clients of the firm, which will ensure that the retired partner shall not be liable for the acts after the date of retirement.