Rights of outgoing partner to carry on competing business
The rights of an outgoing partner to carry on a competing business depend on the terms of the partnership agreement and the applicable partnership law in the jurisdiction (like the Indian Partnership Act, 1932, or the Uniform Partnership Act in the U.S.)
General Rule: Right to Compete
An outgoing partner (due to retirement, death, expulsion, or otherwise) generally has the right to start a competing business—unless restricted by agreement.
✅ Permitted Activities (In Absence of Restriction):
Carrying on a similar or competing business.
Advertising their new business.
Using their own name (if not misleading).
Restrictions Under Law
Most partnership laws provide that while an outgoing partner can compete, they cannot:
❌ Do the following without consent:
Solicit the firm’s old customers.
Represent themselves as being part of the old firm.
Use the old firm’s name, trade secrets, or goodwill (unless purchased).
📌 Example from Indian Law:
Section 36 of the Indian Partnership Act, 1932:
Allows an outgoing partner to carry on a competing business.
Prohibits use of the old firm name or soliciting customers unless there's an agreement allowing it.
If the outgoing partner has sold goodwill, they’re more restricted (per Section 53).
Contractual Restrictions (Non-Compete Clauses)
A partnership agreement may include a non-compete clause, valid only if reasonable in:
Time (e.g., 2 years)
Geography (e.g., within the same city)
Scope (same line of business)
Courts generally uphold such clauses if they protect legitimate business interests and are not overly restrictive.
Summary
| Right | Condition |
|---|---|
| Start a competing business | ✔ Allowed (unless restricted by contract) |
| Solicit old clients | ❌ Not allowed without consent |
| Use old firm’s name/goodwill | ❌ Not allowed unless purchased |
| Be subject to non-compete clause | ✔ If reasonable and agreed upon |
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