Incoming Partner (Sec. 31):
Subject to contract between the partners, no person can be admitted as a partner into a firm without the consent of all the existing partners. Mutual confidence and trust among the partners being an essential ingredient of an ideal partnership it is very much natural that there must be consent of all the partners to the introduction of a new partner, unless the partners have already agreed otherwise.
Liability of an incoming partner:
ADVERTISEMENTS:
A new partner becomes liable for the debts and acts of the firm only from the date he is admitted as a partner. He cannot be held liable for the acts of the old firm.
A new partner may, however, agree to be liable for debts existing prior to his admission but such agreeing will not give to a prior creditor the right of suing him because of ‘absence of privily of contract.’
He will be liable to other co-partners only. The creditors can make him liable if he had agreed with them, expressly or impliedly, for being liable towards them for the past debts.
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ADVERTISEMENTS:
Retirement of a Partner (Sec. 32):
A partner is said to retire when the surviving partners continue to carry on the business of the firm, and the member retiring ceases to be a partner.
Method of retirement:
In case of a “particular partnership” a partner may retire with the consent of all the other partners, unless otherwise agreed.
ADVERTISEMENTS:
In case of “partnership at will” a partner may retire by giving a notice in writing to all the other partners of his intention to retire, unless otherwise agreed.
Liability of a retiring partner:
A retiring partner continues to be liable for the acts of the firm done before his retirement. He may, however, free himself from his liability towards third parties for the debts of the firm incurred before his retirement by an agreement with such third parties and the partners of the reconstituted firm discharging the outgoing partner from all liabilities.
The remaining partners alone cannot give this freedom to the retiring partner. He may be discharged only if the creditors agree.
A retiring partner also continues to be liable for the acts of the firm, even after retirement, until public notice is given of the fact of retirement. Similarly, the partners of the reconstituted firm continue, to be liable for the acts of the retired partner though done after retirement, until public notice is given of the retirement.
Such a public notice may be given either by the retiring partner or by any partner of the reconstituted firm. A dormant or sleeping partner, however, need not give any such notice.
Rule of mis-joinder of parties:
The rule of law that ‘separate suit for separate contract and hence no two distinctly liable parties can be sued under one suit’ is known as the rule of mis-joinder of parties.
This rule should be remembered while making an incoming or outgoing partner liable for the debts of the firm. For example, if A, B, C and D are partners and D retires without giving public notice and E is admitted to the partnership on the same very day, i.e., on 1 July 1993, an innocent creditor, who advances money to the firm after 1 July 1993, can make all of them, i.e., A, B, C, D and E individually liable or existing partners, i.e., A, B, C, and £ jointly liable.
He cannot make A, B, C, D and E jointly liable in one suit because all of them were never partners of the same partnership at one time.
Restrictions imposed on a retiring partner. Section 36 has imposed the following restrictions on a retiring partner:
1. He must not use the name of the firm. Although he has a right to carry on a competing business.
2. He cannot represent himself to the public as carrying on the business of the old firm, e.g., as a branch or otherwise.
3. He must not convass the old customers of the firm.
Some of these restrictions, however, may be removed by a contract between the outgoing and the other partners. On the other hand, additional restrictions may be imposed by means of a contract, e.g., the retiring partner may be prohibited from starting a competing business within a specified period or within specified local limits.
Right of a retiring partner in certain cases to share subsequent profits (Sec. 37):
If any member of a firm ceases to be a partner and the business of the firm is carried on without any final settlement of accounts with him, then, in the absence of a contract to the contrary, he or his legal representative has an option either:
(a) To claim 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 (i.e., to claim profits in capital ratio); or
(b) To claim interest at the rate of six per cent per annum on the amount of his share in the property of the firm.
Expulsion of a Partner (Sec. 33):
A partner may be expelled from a firm by majority of the partners only if, (a) the power to expel has been conferred by contract between the partners, and (b) such a power has been exercised in good faith for the benefit of the firm.
The partner who is being expelled must be given reasonable notice and opportunity to explain his position and to remove the cause of his expulsion (Nemi Dass vs. Kunj Behari).
If the expulsion is mala fide the same is void and the irregularly expelled partner will not cease to be a partner. He may get himself reinstated with the help of the court. Of course he cannot claim any damages for wrong expulsion.
The rights and liabilities of an expelled partner are exactly the same as that of a retiring partner.
Insolvency of a Partner (Sec. 34):
Where a partner in a firm is adjudicated as insolvent, 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 will depend upon the agreement of partnership between the partners.
Where under a contract between the partners the firm is not dissolved by the adjudication of a partner as an insolvent, the estate of a partner so adjudicated is not liable for any act of the firm and the firm is not liable for any act of the insolvent, done after the date on which the order of adjudication is made.
It is to be noted that, unlike a retiring partner, an insolvent partner is not required to give a public notice of his being adjudicated insolvent in order to absolve himself from liability for future acts of the firm.
The insolvent partner’s share in the firm’s assets will be used for firm’s debts first and whatever remains will be utilised for the insolvent partner’s personal debts.
Death of a Partner (Sec. 35):
Although on the death of a partner a firm is dissolved, but if the other partners so agree the firm may not be dissolved [Sec. 42 (c)]. Where a firm is not dissolved, the estate of a deceased partner is not liable for any act of the firm done after his death. His estate is liable only for liabilities undertaken during his life time. No public notice of death is required to relieve the deceased partner’s estate from future liabilities.
It is important to note that the provisions of Section 36 (Restrictions imposed on retiring partner) and Section 37 (Right of retiring partner to share subsequent profits in certain cases), which have been discussed under the heading ‘Retirement of a Partner,” are also applicable when partner ceases to be a partner by expulsion, insolvency or death.