Incoming and outgoing partners

INCOMING AND OUTGOING PARTNERS

Section 31: A new partner can be introduced into a firm in the following ways.

1. With the consent of all existing partners.
2. In accordance with a contract between the partners.
3. In accordance with the provisions of section 30. (minors)

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Liability of an incoming partner

Every partner is liable for all the acts of the firm done while he is a partner. It is clear that as a general rule the liability of an incoming partner begins from the date of his joining the field.

Nothing can prevent a partner from agreeing to be liable for the acts done before his admission. It the partner makes such an agreement with his co-partners, the creditors can make him liable if they can show the incoming partner had agreed with them expressly or impliedly , for being liable towards them for the acts done before admission.
Central Bank of India vs Tarseema Compress Wood Manufacturing Co.

Outgoing Partner: A partner may cease to be a partner in following ways.

1. By retirement– Voluntary withdrawal of a partner from firm.

2. By expulsion– Generally the expulsion of a partner is not possible except under the following conditions:

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If the power to expel has been conferred by a contract between the partners.
Such power has been exercised in good faith.

3. By insolvency of the partner– An insolvent is not allowed to continue as a partner and therefore a person who is adjudicated insolvent ceases to be partner on the date on which order of adjudication is made. Whether on adjudication of a partner as insolvent the firm is also dissolved or not depends on a contract between the partners.

4. Death of a partner– A firm is dissolved but if other partners so agree, the firm may not be dissolved and the business of the firm may be continued with the remaining partners.

LIABILITY OF OUTGOING PARTNER ON DEATH AND INSOLVENCY

If the partner is adjudicated insolvent and the other partners agreed to continue the business, the property of the insolvent partner is not liable for an act of the firm after the date of adjudication.

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* No public notice is required of his being adjudicated insolvent. His position is different from the retired or expelled partner, whose liability for the acts of the firm continues unless a public notice of retirement or expulsion is given.

Rights of outgoing partners

1. Right to carry on a competing business.
2. Right to share subsequent profits until the amount due to him has been paid.

Minor’s position if he becomes a partner

Section 30(7): When minor becomes a partner as a major, he will have all the rights and liabilities like other partners.
His share in the property and profits of the firm shall be the same to which he was entitled as a minor.

Section 30(8): Minor’s position if he elects not to become a partner.
When he elects not to become a partner, his rights and liabilities continue to be the same as minor upto the date of his giving public notice.

Application of the doctrine of holding out on minors attaining majority.

Section 30(9): If after attaining majority he represents to be a partner in the firm, his liability on the ground of holding out can still be there.

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2 Comments

  1. I need distinguished between incoming partner and outgoing partner?

    1. Author

      Hi Rakhi,
      In short,
      Incoming Partner is the partner who is joining the Partnership Firm by Contract or is added to the firm.
      Outgoing Partner is the partner who is leaving the Partnership Firm. It can be because of death, expansion, retirement etc.

      Hope it helps.

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