As per the section 32 of the Indian Partnership Act, “A partner retires when he ceases to be a member of the firm without ending the subsisting relations between the other members of the firm or between the firm and other parties. If a partner withdraws from a firm by dissolving it, then it is a dissolution and not retirement of a partner. The retirement of a partner from a firm does not dissolve it. The retirement of a partner from a firm does not dissolve the firm, but merely severs the partnership between retiring partners and continuing partners, leaving the partnership among continuing partners unaffected. On retirement of the partner, the reconstituted firm continues and the retiring partner is to be paid his dues in terms of Section 37 of the Partnership Act.

Partner who cut his connection with the firm is called a retiring partner or outgoing partner. Retirement of a partner leads to reconstitution of a partnership firm as the original agreement between the partners comes to an end. The business may continue with a new agreement with the remaining partners.A partner may retire with the consent of all the other partners, in accordance with an express agreement by the partners, orwhere the partnership is at will, by giving notice in writing to all the other partners of his intention to retire.A retiring partner, however, continues to be liable to third parties even If the liability Is taken over by the remaining partners (s. 32) Therefore in a deed of retirement it is necessary to provide that In the event of the retiring partner being held liable by a third party, the remaining partners shall indemnify him to that extent, when the liabilities are taken over by the remaining partners.