Admission of Partner

Overview

Theoretical aspect

A newly admitted partner acquires two main rights in the firm–

1. Right to share the assets of the partnership firm; and

2. Right to share the profits of the partnership firm.

For the right to acquire a share in the assets and profits of the partnership firm, the partner brings an agreed amount of capital either in cash or in kind. Moreover, in the case of an established firm that may be earning more profits than the normal rate of return on its capital the new partner is required to contribute some additional amount known as premium or goodwill. This is done primarily to compensate the existing partners for the loss of their share in super-profits of the firm.

Following are the other important points which require attention at the time of admission of a new partner:

1. New profit sharing ratio;

2. Sacrificing ratio;

3. Valuation and adjustment of goodwill;

4. Revaluation of assets and Reassessment of liabilities;

5. Distribution of accumulated profits (reserves); and

6. Adjustment of partners’ capitals.

Overview

The partnership in India is carried on by the law named “Indian Partnership Act,1932”. Further, Section 31 of chapter V of the act deals with the admission of a partner in a partnership firm.

It states,

“1) Subject to contract between the partners and to the provisions of section 30, no person shall be introduced as a partner into a firm without the consent of all the existing partners.

(2) Subject to the provisions of section 30, a person who is introduced as a partner into a firm does not thereby become liable for any act of the firm done before he became a partner.”

Analysis

In a partnership, the agreement between the partners is the most important document. To admit a partner, partners should reframe the agreement along with the new partner. Such a new deed should mandatorily supersede the old deed or deeds. Such a new deed should be signed by all the partners in witness thereof.

Further, the minor can be admitted to a partnership but only for the benefits and not for the disadvantage to the minor.

Thereafter, any partner admitted to the firm shall not be responsible for the acts or deeds done before his effective date of admission.

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