Chapter V - Incoming and Outgoing Partners
Section 37
Section 37: Outgoing partner’s share of subsequent profits
Section 37 addresses the financial entitlement of an outgoing partner or estate when continuing partners keep using firm property without final settlement.
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Need advice on Section 37?
This article is for general information. Refer to the Indian Partnership Act, 1932 official text for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
Where any member of a firm has died or otherwise ceased to be a partner, and the surviving or continuing partners carry on the business of the firm with the property of the firm without any final settlement of accounts as between them and the outgoing partner or his estate, then, in the absence of a contract to the contrary, the outgoing partner or his estate is entitled at the option of himself or his representatives to such share of the profits made since he ceased to be a partner as may be attributable to the use of his share of the property of the firm or to interest at the rate of six per cent. per annum on the amount of his share in the property of the firm:
Provided that where by contract between the partners an option is given to surviving or continuing partners to purchase the interest of a deceased or outgoing partner, and that option is duly exercised, the estate of the deceased partner, or the outgoing partner or his estate, as the case may be, is not entitled to any further or other share of profits; but if any partner assuming to act in exercise of the option does not in all material respects comply with the terms thereof, he is liable to account under the foregoing provisions of this section.
Central rule and applicability
Absent a contrary contract, the outgoing partner or estate may choose the share of later profits attributable to use of that person's share of firm property, or six per cent annual interest on that share's amount. This applies where the person died or otherwise ceased to be a partner and business continues using firm property without final settlement. A duly exercised contractual purchase option can exclude a further profit share; material non-compliance restores the stated accounting consequence.
Limits and related provisions
The choice is between attributable profits and statutory interest, not an automatic cumulative award of both. The profit measure is not necessarily the outgoing partner's old percentage of every later business profit. Final settlement, contrary contract and the purchase-option proviso must all be checked, along with state law.
Hypothetical business example
Hypothetical: Continuing partners use an unsettled outgoing partner's share of business assets. The adviser compares the profits attributable to that use with the six per cent interest option and examines whether a contractual buyout option was genuinely exercised in material compliance with its terms.
Practical decision flow
Establish the exit or death date, continued use of firm property and whether final accounts were settled.
Read any contrary agreement or purchase option and test material compliance with it.
Document the property share and compare the alternative attributable-profit and interest entitlements before selecting a claim.
Check the applicable state law
This guide explains the central Section 37 baseline. State amendments, notifications and rules can affect its application. Confirm the law applicable to the firm's location and the relevant partnership agreement before acting.
Practical checklist
Do
- Establish the exit or death date, continued use of firm property and whether final accounts were settled.
- Read any contrary agreement or purchase option and test material compliance with it.
- Document the property share and compare the alternative attributable-profit and interest entitlements before selecting a claim.
Avoid
- The choice is between attributable profits and statutory interest, not an automatic cumulative award of both. The profit measure is not necessarily the outgoing partner's old percentage of every later business profit. Final settlement, contrary contract and the purchase-option proviso must all be checked, along with state law.
Glossary
- Attributable profits
- The later profits linked to use of the outgoing person's share of firm property.
- Purchase option
- A contractual right of continuing partners to buy the outgoing or deceased partner's interest.
Frequently asked questions
Are later profits and six per cent interest automatically both payable?
No. The section provides the stated option between them.
Does any claim to exercise a buyout option end the accounting duty?
No. The proviso addresses due exercise and material compliance with the option's terms.
Does the section require unsettled accounts?
Yes. Its stated situation includes continuing business with firm property without final settlement with the outgoing partner or estate.
Need help applying this provision to your situation?
Contact BizeneedLast updated 10 October 2026