Admission of a Partner — Meaning, Reasons and Legal Position

Admission of a partner is the form of reconstitution this MSBSHSE Std XII Book-Keeping and Accountancy chapter is entirely devoted to.

Why a firm admits a new partner

• To bring in additional capital needed for expansion of the business.
• To bring in a person with special skill, technical knowledge or managerial ability that the existing partners lack.
• To expand the business into new products, markets or territories.
• To reduce the workload of the existing partners by sharing management responsibility.
• To bring in a person whose goodwill, contacts or reputation will benefit the firm.

Legal position of a newly admitted partner

Section 31 of the Indian Partnership Act, 1932 governs the admission of a partner, and its key rules carry directly into how the accounting is done:

• A person can be introduced as a partner into a firm only with the consent of all the existing partners, unless the partnership deed itself provides otherwise.
• The new partner is not liable for any act of the firm done before he became a partner — his liability begins only from the date of his admission, unless he expressly agrees to also take on liability for the firm's earlier acts.
• From the date of admission, the new partner acquires the same rights as any other partner: a share in future profits and losses in the agreed ratio, a share in the assets of the firm, a right to take part in the conduct of the business, and a right to inspect and take a copy of the firm's books of account. …