Business Laws · The Indian Partnership Act, 1932

Admission, Retirement and Expulsion of a Partner

Updated 4 October 2026 · Fact-checked

A new partner joins only with the consent of all existing partners. A partner retires by consent, by agreement, or by written notice if the firm is at will. A partner can be expelled only under a contractual power used in good faith. Retired partners stay liable to third parties until public notice. Answer using rule, facts, conclusion.

Understand Admission, Retirement and Expulsion of a Partner

A partnership is not fixed. People join, leave or are removed while the firm carries on. The Indian Partnership Act, 1932 sets the rules for each change and decides who is liable to outsiders afterwards.

Admission. A new partner can be brought in only with the consent of all the existing partners, unless the partnership contract says otherwise. A new partner is not liable for acts of the firm done before he joined. He is liable for acts done after he joins.

Retirement (Section 32). A partner may retire in three ways: with the consent of all the other partners, in accordance with an express agreement among the partners, or, if the partnership is at will, by giving written notice of his intention to retire to all the other partners.

Expulsion (Section 33). A majority cannot throw a partner out just because they are a majority. Expulsion is valid only if a contract between the partners gives that power and it is used in good faith. An expelled partner is treated like a retired partner for liability and notice.

After he leaves. Two questions decide most exam answers. First, is the outgoing partner still liable to outsiders? Yes, until public notice is given, except towards people who did not know he was a partner (Section 32(3)). Second, what does he get from the firm? If the remaining partners carry on the business with the firm's property and there is no final settlement, he can claim a share of profits or 6% interest (Section 37).

Key rules to remember

Admission of a partner: New partner = consent of all existing partners (unless contract says otherwise); A new partner is not liable for acts done before admission. He is liable for acts after admission. No section number is needed in the answer.
Modes of retirement – Section 32(1): (a) consent of all other partners; (b) express agreement; (c) written notice to all other partners if partnership at will; Written notice works only for a partnership at will.
Expulsion – Section 33(1): Expulsion valid only if: power given by contract + exercised in good faith; No majority, however large, can expel without a contractual power. Section 33(2) applies Section 32(2), (3) and (4) to the expelled partner.
Liability after retirement – Section 32(3): Retired partner liable for acts of the firm until public notice is given; Proviso: not liable to a third party who deals with the firm without knowing he was a partner.
Discharge from past liability – Section 32(2): Agreement between retiring partner, third party and the reconstituted firm's partners; It may be implied from a course of dealing after the third party knows of the retirement.
Public notice – Section 72: Registered firm (retirement or expulsion): notice to Registrar under Section 63 + Official Gazette + vernacular newspaper. Other cases: Gazette + vernacular newspaper; The newspaper must circulate in the district of the firm's place or principal place of business. Notice may be given by the retired partner or any partner of the reconstituted firm (Section 32(4)).
Outgoing partner's share of profits – Section 37: Either profits attributable to use of his share of firm property, or interest at 6% p.a. on his share; Applies when continuing partners carry on the business with firm property without final settlement, and there is no contrary contract. The option is the outgoing partner's or his estate's.
Option to purchase – proviso to Section 37: Option given by contract + duly exercised = no further share of profits; If the option is not exercised in all material respects as per its terms, the partner must account under Section 37.
Competing business – Section 36: May compete and advertise; may not use firm name, claim to carry on the firm's business, or solicit the firm's old customers (unless contract allows); A partner may agree not to carry on a similar business within a specified period or area, valid if the restrictions are reasonable.
Liability of partners – Section 25: Every partner is liable jointly and also severally for all acts of the firm done while he is a partner; This is why the date of leaving matters.

How to solve Admission, Retirement and Expulsion of a Partner questions

Use this method for any problem on admission, retirement or expulsion. It keeps your answer in the provision-facts-conclusion format.

1Identify the event: admission, retirement or expulsion. Underline who is entering or leaving and the dates.
2For admission, check whether all existing partners consented, or whether the contract says otherwise.
3For retirement, name the mode: consent of all, express agreement, or written notice (only if the firm is at will). Check the facts for which one fits.
4For expulsion, ask two questions. Does a contract give the power? Was it used in good faith? If either answer is no, the expulsion is invalid.
5For liability, separate acts before the change from acts after it. Check whether public notice was given and whether the third party knew the person was a partner.
6For money questions, check whether accounts were settled. If not, and the firm continues using firm property, apply Section 37: profits attributable or 6% interest, at the outgoing partner's option.
7Write the rule, apply the facts, and end with a one-line conclusion naming who is liable or entitled.

Quickest way: Date, notice, knowledge check

When to use it: Use this for scenario questions where a partner has left and a third party is claiming money.

Mark the date the partner left and the date of the transaction. If the transaction was before he left, he is liable.
If after, ask: was public notice given? If yes, he is not liable.
If no notice, ask: did the third party know he was a partner? If the third party did not, the retired partner is not liable. If the third party knew, he is liable.
For expulsion questions, check only two things: contract power and good faith.
For payment claims, check for a final settlement of accounts. If none, quote Section 37.

Common mistakes in Admission, Retirement and Expulsion of a Partner

Saying a majority of partners can expel a partner.
Students carry over the idea that majority rules, as in company law.
Fix: Remember Section 33(1): expulsion needs a contractual power and good faith. Majority alone is never enough.
Saying a retired partner is free from liability the day he retires.
Students treat retirement as a private event between partners.
Fix: Liability to third parties continues until public notice, except towards persons who did not know he was a partner.
Making a new partner liable for debts incurred before he joined.
Students confuse the firm's liability with the new partner's own liability.
Fix: A new partner is liable only for acts done after admission. Any liability for earlier debts would need a separate agreement.
Allowing retirement by written notice in every partnership.
Students remember 'notice' but forget the condition.
Fix: Written notice under Section 32(1)(c) works only where the partnership is at will. Otherwise use consent or express agreement.
Writing that the outgoing partner can claim both profits and interest under Section 37.
The section lists both, so students add them.
Fix: It is either/or, at the option of the outgoing partner or his representatives.
Forgetting the Registrar when the firm is registered.
Students remember only the newspaper notice.
Fix: For retirement or expulsion from a registered firm, public notice means notice to the Registrar under Section 63 plus Gazette and vernacular newspaper publication.

Worked examples

Example 1

X, Y and Z are partners in a firm that is not registered. Z retires with the consent of X and Y. No public notice is given. Later, Supplier S, who had always dealt with the firm knowing Z was a partner, sells goods to the firm on credit on the basis of an order placed by X. The firm fails to pay. Advise whether Z is liable. Would your answer change if S had been a new customer who did not know Z was ever a partner?

Show the solution

Rule: A partner may retire with the consent of all other partners (Section 32(1)(a)). After retirement, he and the other partners remain liable to third parties for acts that would have been acts of the firm if done before retirement, until public notice is given (Section 32(3)).
Facts: Z retired validly by consent. No public notice was given. The order was placed after Z retired. S knew Z as a partner.
Application: Because no public notice was given, Z's liability continues towards S, who knew him as a partner. The proviso to Section 32(3) protects Z only against someone who dealt with the firm without knowing he was a partner.
Variation: If S was a new customer who did not know Z was a partner, the proviso applies and Z is not liable to S.

Answer: Z is liable to S, because he retired validly but public notice was not given and S knew him to be a partner. If S did not know Z was a partner, Z would not be liable to S.

Example 2

A, B, C and D are partners. The partnership deed gives no power of expulsion. A, B and C pass a resolution expelling D because they find him difficult. Separately, E, another partner in a different firm, retires. His share in the firm's property is ₹2,00,000. The continuing partners carry on the business with the firm's property for one full year without settling E's account. There is no contract to the contrary. State whether D's expulsion is valid. State what E can claim, in terms of interest.

Show the solution

Rule for D: A partner cannot be expelled by any majority, except through powers conferred by contract between the partners and exercised in good faith (Section 33(1)).
Application for D: The deed gives no power of expulsion. A, B and C acted only as a majority. So the expulsion is invalid and D continues as a partner.
Rule for E: When continuing partners carry on the business with firm property without final settlement, and there is no contrary contract, the outgoing partner may claim a share of profits attributable to the use of his share, or interest at 6% per annum on his share (Section 37).
Calculation for E: Interest = ₹2,00,000 × 6% × 1 year = ₹12,000.
E may choose between interest of ₹12,000 and the profits attributable to the use of his share of the property.

Answer: D's expulsion is invalid because the deed gives no power to expel and a majority alone cannot do it. E can claim, at his option, either the profits attributable to the use of his share or interest at 6% p.a., which is ₹12,000 for the year.

Exam tips

Scenario questions usually test the retirement date against the transaction date. Write both dates on your rough sheet first.
Always state the mode of retirement by name. Examiners award a mark for naming consent, express agreement or notice for a partnership at will.
In expulsion answers, write both conditions: contractual power and good faith. Missing one loses marks.
For Section 37, say the outgoing partner chooses between profits and 6% interest. Do not add the two.
For a registered firm, mention the Registrar under Section 63 along with Gazette and newspaper notice.

Practice questions from The Indian Partnership Act, 1932

Admission, Retirement and Expulsion of a Partner: frequently asked questions

Can a new partner be admitted without everyone agreeing?

Not unless the partnership contract allows it. The rule is that all existing partners must consent. A new partner is liable only for acts of the firm done after he joins.

How does a partner retire from a firm?

There are three ways under Section 32(1): consent of all other partners, an express agreement among the partners, or written notice to all the other partners if the partnership is at will. Public notice should follow to end liability to outsiders.

When can a partner be expelled under Section 33?

Only when a contract between the partners gives the power to expel and the power is used in good faith. A majority decision alone is not enough. An expelled partner is treated like a retired partner for liability and notice.

What can an outgoing partner claim under Section 37?

If the continuing partners use the firm's property and do not make a final settlement of accounts, the outgoing partner or his estate can claim either the profits attributable to his share of the property or 6% interest per annum on his share. This applies in the absence of a contract to the contrary.

Can a retired partner start a competing business?

Yes, under Section 36 he may carry on a competing business and advertise it. He may not use the firm name, claim to carry on the firm's business, or solicit the firm's old customers, unless the contract says otherwise. An agreement not to compete within a stated period or area is valid if reasonable.