PROJECT REPORT

ON

INCOMING AND OUTGOING PARTNERS

Submitted by: Tushar mathur Bba.llb{h} A3221512003

Acknowledgement

Index

Introduction
The Indian Partnership Act, 1932 is an act enacted by the Parliament of India to regulate partnership firms in India. It received the assent of the Governor-General on 8 April 1932 and came into force on 1 October 1932. Before the enactment of this act, partnerships were governed by the provisions of the Indian Contract Act. The act is administered through the Ministry of Corporate Affairs. The act is not applicable to Limited Liability Partnerships, since they are governed by the Limited liability Partnership Act, 2008. Partnership refers to an agreement between persons to share their profits or losses arising on account of actions carried by all or one of them acting on behalf of all. The persons who have entered such an agreement are called partners and give their collective business a name, which is necessarily their firm-name. This relation between partners arises out of a contract or an agreement, which means a husband and wife carrying on a business or members of a Hindu undivided family re not into partnership. The share of profits received by any individual from the firm, money received by a lender of money, salary received by a worker or a servant, annuity received by a widow or a child of a deceased partner, does not make them a partner of the firm.

INTRODUCTION OF A NEW PARTNER

Object of section 31(1): The general idea behind section 31(1) of the Act is that the consent of all the existing partners is required to the introduction of a new partner so that the firm may work harmoniously. A new partnership may be by an oral agreement or in writing. Breaking identity of Firm by Addition of New Partners Whenever the constitution of a firm changes by addition of new members as partners, there is a breaking the identity of the firm whether or not the name continues to be the same. After a change in the constitution of the firm by addition of new partners what formerly was the property of the old firm does not continue to be the property of the old firm. When the change in the constitution is merely a paper transaction and not a genuine and real transaction, the court would disregard the change in the constitution of the firm and would regard the property of the old firm in spite of the apparent though real, change in the constitution. Where, however, there is a real change in the constitution and the new firm is a new identity there seems to be no justification for the view that whatever was the part of the property of the old firm continues to be its property in spite of such change. If the properties could not reach in the hands of the old firm, it could not be attached obviously in the hands of the new firm.

Liability of an Incoming Partner To determine the issue whether an incoming partner is liable to an existing creditor of the firm, two questions are to be answered. First, whether the new firm has assumed the liability to pay the debt; secondly, whether the creditor has agreed so accept the new firm as his debtor and to discharge the old partnership from its liability. A creditor must prove both the said conditions in order to hold the new firm liable for his debts. In the case of a partnership consisting of only two partners contract to continue partnership by admitting legal representative of nominee of deceased partner on the death of one partner does not make a partnership to exist for taking in new partner. Surviving partner continuing business of partnership with the members of deceased partner's family does not constitute a firm within section16(f)(6) of the Income-tax Act. An incoming partner can be held liable for existing debts of the firm if he has assured liability and the creditor has accepted him as a debtor. Where documents on record show that new partner had acknowledged pre-existing liability and was also trying to clear the dues and the act of the Bank was not withdrawing the credit facilities of newly constituted firm, all those would show that the new partner is liable to pay pre-existing debts of the firm. Though the new partnership deed did not provide for assumption of such liabilities by the new partner, yet, it was held that it was immaterial for determination of this question

OUTGOING PARTNER
Retirement of a partner
Sec 32(1) A partner may retire, (a) With the consent of all the other partners, (b) in accordance with an express agreement by the partners, or (c) where the partnership is at will, by giving notice in writing to all the other partners of his intention to retire. A retiring partner may be discharged from any liability to any third party for acts of the firm done before his retirement by an agreement made by him with such third party and the partners of the reconstituted firm, and such agreement may be implied by a course of dealing between such third party and there constituted firm after he had knowledge of the retirement. Notwithstanding the retirement of a partner from a firm, he and the partners continue to be liable as partners to third parties for any act done by any of them which would have been an act of the firm if done before the retirement, until public notice is given of the retirement. Provided that a retired partner is not liable to any third party who deals with the firm without knowing that he was a partner. Notices under sub-section (3) may be given by the retired