Accountancy · Ch 3 — Reconstitution of a Partnership Firm — Admission of a Partner
Introduction
Introduction
What "Reconstitution" Means
A partnership is built on an agreement among its partners to share the profits of a business run by all of them, or by any one of them acting on behalf of all. Whenever that existing agreement changes, the partnership firm is said to be reconstituted — the old agreement comes to an end, and a new one takes its place, with a changed relationship (and sometimes a changed membership) among the partners. Crucially, the firm itself continues — reconstitution is not the same as the firm closing down.
Partners commonly reconstitute a firm in four ways:
- Admission of a new partner
- Change in the profit-sharing ratio among existing partners
- Retirement of a partner
- Death (or insolvency) of a partner
This chapter briefly introduces all four situations, but goes into full accounting detail only for admission of a new partner and change in profit-sharing ratio. Retirement and death are covered in the next chapter.