Addition and Removal of Partners in Partnership Firm

Any sort of changes in the relationship between the partners of the firm leads to the reconstitution of the firm. Therefore, due to the addition or removal of any partner in the firm, the firm will have to reconstruct itself. This is one of the reasons as to why the addition or removal of a partner in a partnership firm can only be done after all the partners consent for it. In this article, we will go through the legitimate consequences of addition and removal of the partners Under the Indian Partnership Act, 1932 for a partnership firm.

Section 31: Admission of a New Partner

Under this section, it is stated that the admission of a new partner into the partnership firm will only be done if all the partners are aware of this new partner’s arrival and they all have consented for the same. The new partner of the partnership firm can start working from the day of his admission unless he agrees that he will be liable for the liabilities that the firm faced before the date. The reconstituted firm along with the new partner may try to contribute to the existing debts of the firm and the creditors may discharge the old partners and may end up accepting the new firm as their debtor. The consent of the creditor is essential for the validation of each and every transaction.

However, this section does not apply to those partnerships which have only two partners as at the death or dismissal of any one of the partners, the partnership firm will be automatically dissolved. iN this case, there is no partnership in which a new partner could be admitted without the consent of the other partner.

Section 32: A Partner’s Retirement

It is possible that a partner wants to retire from the firm. In order to do that, the partner must meet the following criterion:

1. All the other partners must consent to his retirement
2. He needs to form an express agreement among all the partners
3. He needs to submit a notice to all the partners in written form which will state his intention of retiring, in case the partnership was formed at will

But, the retired partner will be liable for the acts of the firm to a third party until and unless he or the other partners publishes a public notice for the withdrawal.

Section 33: A Partner’s Expulsion

It is possible that a partner gets expelled from a partnership firm. It is not possible to expel a partner until the decision gains majority. However, if the expulsion is done for the betterment of the partnership firm and in good faith, then the partner can be expelled.  The expulsion will be considered helpful for the firm if the following conditions are satisfied:

1. The power to expel needs to be mentioned in the contract that is done between the partners.
2. The majority should hold the decision to expel
3. The main purpose behind the expulsion should be the betterment of the firm.

In case, the expulsion is done without satisfying the above mentioned conditions, then the expulsion of the partner will not be considered valid. The best approach to adopt when one of the partners is involved in misconduct is to opt for judicial dissolution. Alos, the expulsion of a partner does not necessarily lead to the dissolution of the firm.

Section 34: A Partner becomes Insolvent

In case of a partner of a partnership firm being deemed insolvent, the partner will cease to exist as a partner of the firm from the date on which he was deemed to be insolvent. The estate of the partner will not be liable for any sort of action of the firm that will be taken after the date of order. The partnership firm will not be responsible for any of the actions taken by the insolvent partner. There are various effects of insolvency of the partner. Some are listed below:

• Once the partner is deemed insolvent, he can not continue to be a part of the firm.
• The partner loses his rights to be a partner the day he is deemed as insolvent.
• The estate that belongs to an insolvent partner is not liable for any type of action that is taken by the firm.
• The firm will not be held responsible for any type of actions that are taken by an insolvent partner.

Section 35: A Partner’s Demise

In most of the cases, the partnership firm gets dissolved when a partner dies. But, if a contract has been done between the partners which states that the death of the partner will not dissolve the firm, the estates that belong to the dead partner won’t be liable for any act of the firm. This rule is totally dependent on the contract that is drafted between the partners. This Section is only applicable for those firms which  have more than just two partners.

Section 38: Guarantee Revocation

If the transactions made by the firm are revoked, then a continuing guarantee is given to the third party for the future transactions starting from the date of any changes that are made in the firm’s constitution. This provision is stated in the Section 38 of the Indian Partnership Act when there is no agreement present. We should keep in mind that this agreement is subject to an agreement.