INCOMING AND OUTGOING PARTNERS
Chapter V (Sections 31 to 38) of the Indian Partnership Act contains provisions with regard to 'Incoming and Outgoing partners'.
INCOMING PARTNERS
Section 31 contains the following provision about the 'introduction' of a partner into an already existing partnership firm. Sub-section (1) deals with the modes of introduction of a partner whereas sub-section (2) talks about his liability.
31. INTRODUCTION OF A PARTNER
Subject to the CONTRACT between the partners and to the provisions of SECTION 30, no person shall be introduced as a partner into a firm without the CONSENT OF ALL the existing partners.
Subject to the provisions of Section 30, a person who is introduced as a partner into a firm does not thereby become liable for any act of the firm done before he became a partner.
MODES OF INTRODUCTION OF A PARTNER
A new partner can be introduced into a firm in the following ways:—
1. With the consent of all the existing partners;
2. In accordance with a contract between the partners;
3. In accordance with the provisions of Sec. 30.
(1) INTRODUCTION WITH THE CONSENT OF ALL THE PARTNERS-- GENERAL RULE
The relationship between the partners is based upon mutual confidence and trust. For the harmonious working of a partnership, it becomes necessary that a new partner should not be introduced without the consent of all the partners.
This section, therefore, provides the GENERAL RULE that no person shall be introduced as a partner into the firm without the consent of all the existing partners.
(2) INTRODUCTION IN ACCORDANCE WITH A CONTRACT BETWEEN THE PARTNERS
The rule stated above is subject to contract between the partners. If a contract between the partners permits the introduction of a new partner even without the consent of all the existing partners, that can possibly be done.
For example, the contract provides the majority of the partners shall be competent to admit a new partner or anyone of them may nominate a partner or appoint his successor, a new partner could be introduced accordingly.
In such cases even if some of the partners are unwilling to the introduction of some particular person, they will be bound by their contract and the introduction will be valid.
BYRNE V. REID (1902) 2 Ch. 735;
In Byrne v. Reid, A, B, C and D were four partners and they, in their partnership deed, authorised A to admit his son, S into partnership when S had attained the age of twenty-one years.
After S attained the age of twenty-one years, A nominated him as a partner in accordance with the partnership deed and he accepted the nomination, but the other partners refused to recognise him as a partner.
It was held that the son on accepting the nomination had become a partner.
It may be noted that a person does not become a partner merely by his nomination. He has an option to become a partner or not. He becomes a partner when after nomination he expressly or impliedly agrees to the same.
(3) A MINOR ADMITTED TO THE BENEFITS OF PARTNERSHIP BECOMING A PARTNER
A minor admitted to the benefits of partnership can become a partner according to the procedure mentioned in Section 30(5).
When a minor was admitted to the benefits of partnership, he may make an election, within 6 months of his attaining the majority or obtaining knowledge that he had been admitted to the benefits of partnership, whichever date is later, and give a public notice whether he became a partner or not.
If he opts to become a partner by such notice, he becomes a partner of the firm. If he fails to give such notice within the above stated time, then on the expiry of such time, he automatically becomes a partner.
It may be noted that in case of such a minor becoming a partner, the consent of other partners is not required.
LIABILITY OF AN INCOMING PARTNER
According to Section 25: "Every partner is liable.... for all the acts of the firm done while he is a partner." Section 31(2) confirms this rule and states an incoming partner "does not thereby become liable for any act of the firm done before he became a partner".
It is clear that as a general rule the liability of an incoming partner begins from the date of his Joining the firm.
However, a partner may agree to be liable for the acts done before his admission. If he makes such an agreement with his co-partners, the same will be binding only between him and the co-partners and the third parties cannot take advantage of such an agreement.
The creditors can make him liable if they can show that the incoming partner had agreed with them, expressly or impliedly, for being liable towards them for the acts done before his admission.
The basis of liability for the past acts, in such a case, will be the agreement rather than the fact of his admission as a partner.
The position of a minor becoming a partner under Sec. 30 is, however, different. His liability towards third parties does not commence from the date of his becoming a partner, but it relates back to the date of his admission to the benefits of partnership. Section 30(7)(a).
