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Question

A, B and C are partners in a firm. If D is admitted as a new partner, what will be its affect?

The correct answer is
Old partnership is reconstituted

Understanding Partnership Changes: Admission of a New Partner

When a new partner is admitted into an existing partnership firm, it signifies a change in the relationship between the partners. Let's break down the effects:

Effect on the Partnership Agreement

A partnership firm is based on an agreement between the existing partners. This agreement outlines the profit-sharing ratio, capital contributions, management roles, and other terms. The admission of a new partner requires the consent of all existing partners. This admission fundamentally alters the terms of the original agreement.

Because the original terms are changing to include a new member and potentially a new profit-sharing arrangement, the old agreement is legally considered to end. However, this doesn't necessarily mean the business itself stops operating. Instead, a new partnership agreement is formed, incorporating the new partner and the revised terms.

Partnership vs. Firm

It's important to distinguish between the 'firm' and the 'partnership':

  • Partnership: Refers to the relationship between the partners who have agreed to share the profits of a business. This is governed by the partnership agreement.
  • Firm: Refers to the business entity or the business itself that carries out the partnership's objective.

The admission of a new partner leads to the dissolution of the *old partnership* (the previous agreement and relationship) and the creation of a *new partnership* (a new agreement and relationship including the new partner). The firm itself, as a business entity, continues to exist, albeit under new terms and potentially with a new name or structure.

Analysis of Options

  • Old firm is dissolved: This is often incorrect. The business (firm) usually continues its existence.
  • Old firm and old partnership is dissolved: This is incorrect because the firm typically does not dissolve.
  • Old partnership is reconstituted: This is the most accurate description. The original partnership agreement ends, and a new one is formed, effectively reconstituting the partnership.
  • Firm will lose its existence: This is incorrect, as the business entity generally continues.

Therefore, the admission of a new partner results in the reconstitution of the old partnership.

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Important Questions from Partnership

  1. A, B, C invest Rs. 20000, Rs. 30000, Rs. 40000 in a business. After one year, A withdrew his money but B and C continued for one more year. If the net profit after 2 years be Rs. 32000, then A’s share in the profit is:

  2. Adesh and Bhadresh are partners sharing profits and losses in the ratio of 3 ∶ 2. Chandresh is admitted for 20% of share in profits out of which half of the share was gifted by Adesh and remaining was acquired by Chandresh from Adesh and Bhadresh in equal proportion. What would be new profit-sharing ratio?

  3. Mathur started a business by investing R6,76,000 as capital. After 4 months, Goyal joined the business by investing a capital of Rs. 5,07,000. A total of Rs. 2,60,000 including 25% of the total profit was given to Goyal for conducting business at the end of the year. How much profit Mathur will get?

  4. Mannu and Bhanu are partners. Bhanu wants to admit his son Channu into business. Can Channu become the partner of the firm?

  5. L, S and D are partners sharing profits in the ratio of \(\frac{2}{5},\frac{3}{7}\) and \(\frac{3}{10}\). If S retires from the firm, what will be the gain ratio of L

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