Incoming And Outgoing Partners

Prepared by Assist. Professor Rekha Khandelwal

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Relations of Partners to third Parties

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Partnership Act, 1932 –Chapter – V Incoming And Outgoing Partners

31. Introduction of a partner. –

• (1) Subject to contract between the partners and to the provisions of section 30, no person shall be represented as a partner in a firm without the consent of any existing partners.
• (2) Subject to the provisions of section 30, a person who is represented as a partner in a firm, shall not be liable for any act of the firm before becoming a partner.

32. Retirement of a partner. –

 (1) A partner may retire,

• with the consent of all other partners,
• in accordance with the agreement specified by the partners, or
• by giving written notice to all other partners intending to retire where the partnership is at will.

(2) The retiring partner may be relieved of any liability for the work of the firm prior to retirement by agreement with the third party and the partners of the restructured firm with the third party and this contract may be interpreted by any course of dealing between such third party and the reconstituted firm upon learning of retirement

(3) Regardless of the partner’s retirement from the firm, he and the partners will be liable as a partner to third-party for any act committed by either of them until public notice is given of the retirement. But retired partner is not responsible to the third party who deal with the firm without knowing who the partner is.

(4) Notices under sub-section (3) may be given by the retired partner or by any partner of the resrructured firm.

33. Expulsion of a partner. –

• (1) A partner may not be excluded from a firm by any majority of the partners, except in the exercise in good faith of powers conferred by contract between the partners.
• (2) The provisions of sub-sections (2), (3) and (4) of section 32 shall apply to an excluded partner as he were a retired partner.

34. Insolvency of a partner.–

• (1) When a firm partner is determined insolvent, it ceases to be a partner on the date on which the decision is ordered, whether or not the firm is thereby dissolved.
• (2) When Under an agreement between the partners, the firm is not dissolved by the partner’s judgment as insolvent, so the designated partner’s estate is not liable for any work of the firm and the firm is not liable for any work of insolvent, completed after the date where the decision was ordered.

35. Liability of estate of deceased partner. –

• Under an agreement between the partners where the firm is not dissolved by the death of the partner, the estate of the deceased partner is not liable for any work of the firm after his death.

36. Rights of outgoing partner to carry on competing business. –

(1) An outgoing partner may run a business that competes with the firm and may advertise such business, but, subject to an agreement may not do so –

• (a) use the firm name,
• (b) represent himself as conducting the business of the firm, or
• (c) Ask for the trade of persons who were dealing with the firm before he ceased to be a partner.

Agreements in restraint of trade. – (2) A partner may enter into an agreement with his partners that on ceasing to be a partner he will not conduct any business like the firm within a specified period or within certain local limits; And, notwithstanding anything contained in section 27 of the Indian Contract Act, 1872

the contract shall be valid if the imposed sanctions are reasonable.

37. Right of outgoing partner in certain cases to share subsequent profits. –

Where any member of a firm has died or otherwise ceased to be a partner, and surviving or continuing partners conduct the business of the firm with the property of the firm without any final accounting between them and the departing partner. then, in the absence of an agreement to the contrary, the outgoing partner or his estate is entitled to the option of the outgoing partner or his property himself or his representatives, as he ceases to be a partner, for use of its share in the firm’s assets or interest at the rate of six per cent. Annually on the amount of its shares in the firm’s assets.

Provided that the agreement between the partners provides for the surviving or continuing partners to purchase the interests of the deceased or outgoing partner, and that option is duly exercised, the deceased partner or outgoing partner or his property, as the case may be, any part of the profit or the other partner is not entitled; However, if any partner who practices the option effectively deems that all components do not comply with its terms, he is liable under the aforesaid provisions of this section.

38. Revocation of continuing guarantee by change in firm. –

In the case of a firm transaction, a continued guarantee given to a firm or a third party, in the absence of a contract as opposed to a contract, cancels future transactions from the date of change of the firm’s constitution.