Incoming and Outgoing Partners under the Indian Partnership Act

The terms "incoming partners" and "outgoing partners" are frequently used in the context of business partnerships.

• Incoming partners are new members who join an existing partnership or business. This can happen in various ways, such as a new investor joining a venture capital firm, a new member joining a law or accounting partnership, or a new franchisee joining a franchise business.
• Outgoing partners are those who leave an existing partnership or business. This can occur for various reasons, including retirement, resignation, or termination.

Incoming Partners under the Indian Partnership Act

An incoming partner is someone who joins the partnership firm by agreement or is added to the firm. They are the new members admitted to the partnership. Such admission is subject to any procedure or method the firm adopts to include new members. It is important to note that a new partner can only be admitted with the consent of all existing partners.

Liability of Incoming Partners

A person who is admitted as a partner into an existing firm does not become liable to the firm's creditors for anything done or omitted before they became a partner. A new partner is only liable for the debts and actions of the firm from the date they are admitted as a partner. They are only liable to other co-partners.

Outgoing Partners under the Indian Partnership Act

An outgoing partner is someone who leaves a partnership, either voluntarily, through death, or by being expelled by the firm. Sections 32 to 38 of the Indian Partnership Act address various ways a partner may leave the firm, along with their rights and liabilities.

Ways an Outgoing Partner May Leave

• Retirement of a Partner - Section 32 covers retirement and states that a partner may retire under the following circumstances:
  • With the consent of all other partners.
  • According to the express terms of the partnership agreement.
  • If the partnership is at will, by giving notice of retirement to all other partners.
• Outgoing Partner by Notice - In the case of a partnership at will, a partner may retire by giving notice of their intention to retire to all other partners. Such notice is necessary if the other partners do not agree to the retirement or are not available to give their consent.
• Expulsion of a Partner - Section 33 of the Indian Partnership Act covers the removal of a partner, stating that a partner can be removed when certain conditions are met:
  • Notice is given to remove the partner.
  • The removal is necessary for the partnership's interest.
  • The expelled partner is given an opportunity to be heard.
• Insolvency of a Partner - An insolvent person is not allowed to continue as a partner. Therefore, a person adjudicated insolvent ceases to be a partner on the date of the adjudication order. Whether the firm is dissolved upon a partner's insolvency depends on the terms of the partnership agreement.
• Death of a Partner - A firm may be dissolved upon the death of a partner, but if the remaining partners agree, the firm may continue its business.

Rights of Outgoing Partners

• Right to Carry on a Competing Business - Section 36(1) of the Indian Partnership Act deals with the right of an outgoing partner to carry on a competing business, with certain restrictions:
  • They cannot use the firm's name.
  • They cannot represent themselves as a member of the firm.
• Right to Share Future Profits - Section 37 provides that if a partner dies or ceases to be a partner and the business continues without a final settlement of accounts, the outgoing partner is entitled to share in the profits made by the firm since they ceased to be a partner.

Liabilities of Outgoing Partners

A retired partner remains liable to third parties for the acts of the firm until a public notice of their retirement is given by either the retiring partner or the remaining members of the firm. However, if the partnership is at will, a partner may be relieved of liability without giving public notice.

This overview of incoming and outgoing partners under the Indian Partnership Act provides insight into the rights and responsibilities associated with joining or leaving a partnership.