Partnership Act, 1932

Reconstitution of Firm

Reconstitution of Firm
Reconstitution of a firm means readjustment in the relationship between the partners. Basically firm is a collection of partners, if there is a change in the number or in status of the partners, the firm is said to be reconstituted.

Different ways for Reconstitution of a Firm:

A firm may be reconstituted in the following ways: Admission/introduction of new Partner Retirement of a partner Expulsion of a partner Insolvency of a partner Death of a partner Transfer of a partners interest

1.Admission/Introduction of new Partner

A firm is said to be reconstituted when a new partner is introduced in it. But no person shall be introduced as a partner into a firm without the consent of all the existing partners. It is very much necessary that there must be consent of all the partners to the introduction of a new partners, unless all the partners have already agreed otherwise.

1.Admission/introduction of new Partner

Liabilities of a new partner A new partner cannot be held liable for the acts of the firm done before he became a partner.

2. Retirement of a partner
A partner is said to be retired when the surviving partners continue to carry on the business of the firm, and the member retiring ceases to be a partner.

Retirement of a partner
Liabilities of a retired partner A retiring partner continues to be liable for all the acts of the firm done before his retirement or the acts pending at the time of his retirement unless he has discharged his liability.

Mode of Retirement of a partner

1 2 3 A partner may be retire with the consent of all the other partners. A partner may be retire in accordance with an express agreement by the partners. When the partnership is at will, by giving notice in writing to all the other partners of his intention to retire. In this situation one partner withdraws from the firm and other partners continue to carry on other business of the firm without its dissolution so the firm is reconstituted without its dissolution.

Expulsion of a partner

A partner may be expelled from the partnership subject to the following conditions. (a) The power of expulsion should be given to partners by an express contracts between the partners. (b) The power for expulsion should be exercised by all other partners. (c) The power of expulsion should be exercised in good faith. (good faith means that it should be in the interest of the firm).

Insolvency of a partner

When a partner in a firm is adjudicated as insolvent by the court, he ceases to be a partner on the date on which the order of adjudication is made, whether or not the firm is thereby dissolved. If a partner is declared as insolvent, he is no more a partner in the firm from the date he is declared insolvent by the court.

Death of a partner

Subject to the contract between the partners a firm is dissolved by the death of the partner. However the firm may continue by virtue of the contract to the contrary between the partners.

Transfer of a partners interest

A partner can transfer his share/interest in a partnership to a stranger, the transferee but with previous consent of all the partners. In such situation the transferee has very limited right over the firm. The transferee does not become a partner of the firm. He cannot interfere in the conduct of the business of the firm. The transferee is entitled to receive the share of the profits of the transferring partner. The transferee has to accept the accounts of profits agreed to by the partners.

Mode of Doing Act to Bind Firm

If an act is done or executed by a partner in the firms name it will binds the firm or in simple words the other partners. Where a partner performs an act on his individual name such an act will not bind the firm or the other partners.

Personal Profit Earned by Partners

If any partner derives any profit for himself from any transaction of the firm, or from the use of property of the firm, he shall account for that profit and pay it to the firm. In simple words a partner shall not obtain a private advantage at the expense of the firm.

Personal Profit Earned after the dissolution

Where any partner, after dissolution and before the affairs of the form are wound up, derives any profit for himself from any transaction of the firm, or from the use of property of the firm, he shall account for that profit and pay it to the firm.