Admission of a Partner means when a new partner could also be admitted when the firm needs additional capital or managerial help. According to the provisions of the Partnership Act 1932 unless it’s otherwise provided within the partnership deed a replacement partner is often admitted only the prevailing partners unanimously comply with it. For example, Harish and Haqbul are partners sharing profits within the ratio of 3:2. On April 1, 2017, they admitted Johny as a replacement partner with 1/6 share in profits of the firm. With this change now there are three partners of the firm and it stands reconstituted.
When a firm requires further capital or managerial help or both for the expansion of its business a new partner may be admitted to supplement its existing resources. According to the Partnership Act 1932, a replacement partner is often admitted into the firm only with the consent of all the prevailing partners unless otherwise prescribed. With the admission of a replacement partner, the partnership firm is reconstituted and a replacement agreement is entered into to hold on to the business of the firm. A newly admitted partner acquires two main rights within the firm–
1. Right to divide the assets of the partnership firm;
2. Right to divide the profits of the partnership firm.
For the proper to accumulate a share within the assets and profits of the partnership firm, the partner brings an agreed amount of capital either in cash or in a similar way. Moreover, within the case of a longtime firm that will be earning more profits than the traditional rate of return on its capital the new partner is required to contribute some additional amount referred to as premium or goodwill. This is done primarily to compensate the existing partners for the loss of their share in the super-profits of the firm.
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