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IAI Actuarial Core Principles · Business Management · Separate legal personality, directors' duties, shareholders and partnerships

Kavita, Lalit and Mohan are partners in a Delhi firm with no written partnership deed and no provision on retirement. Mohan wants to leave, while the others want the firm to continue. Which statement is correct under the Indian Partnership Act, 1932?

Mohan may retire by giving notice to the other partners, because a partnership with no fixed term or retirement clause is a partnership at will. Retirement also works with the others' consent or under an express agreement, and it does not by itself dissolve the firm.

  1. AMohan cannot retire unless the others consent, and if the firm is at will he can only leave by court order
  2. BMohan may retire with the consent of the other partners or as per the express agreement, or, if the partnership is at will, by giving notice of retirementCorrect
  3. CMohan's retirement automatically dissolves the firm
  4. DMohan remains liable for the firm's future debts regardless of any notice
  5. Mohan can retire only after the firm is registered

Explanation

A partner may retire with the consent of all other partners, in accordance with an express agreement, or by written notice where the partnership is at will. With no agreement, the firm is at will, so notice works. Retirement does not automatically dissolve a firm of three partners, and the retiring partner's liability for later debts ends once public notice is given, so option 3 is not correct as stated.

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