Section 4 of the Partnership Act of India, of 1932 defines “Partnership” as “a relationship between individuals who agree to share the business interests of one or all of them, present on behalf of all”. And in the same way, it defines a Partner, as who enters into such a partnership with another person. In other words, general partners are people who work collectively for a common business to share profits. Now, it’s important to note what a Partnership Deed is. It is a tool that formalizes the agreed terms of a partnership by partners. It can be written or spoken, but in any case, creates a legal agreement. In this case we shall discuss entry and liability of incoming partner in a partnership firm.

Incoming Partners:

Incoming Partners are the partners who are joining the partnership firm by contract or is added to the firm. The ‘incoming partners’ are the partner who are joining the partnership firm by contract or added to the firm. Incoming Partners are the new partners who get admitted to the firm. Such admission is subject to any procedure already established by the firm and its already existing members to adopt any new member.

Section31:

Introduction of a Partner:

(1) Subject to 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.

(2) Subject to the provisions of section 80, 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.

Section 31 of the Partnership Act, 1932 contains the 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.

According to Section 31 of the Act, new members can only be admitted to the firm with the consent of all the members existing in the firm. Furthermore, once a person is admitted as a partner to the firm then he shall be jointly liable to the acts of the form only taking place from the date at which he has joined the firm. Therefore, it can be said that the legal liabilities of the partners who have recently joined begin only after he is admitted to the firm and not before that.

Modes of Introduction of a Partner:

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

• With the consent of all the existing partners;
• In accordance with a contract between the partners;
• In accordance with the provisions of Section 30.

Introduction with the Consent of All the Partners:

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.

Introduction in Accordance with a 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.

In Lovergrove v Nelson, 1 (1834) 3 My & K 120 case,  the Court observed “To make a person a partner with 2 others, their consent must clearly be had, but there is no particular. mode or time required for giving that consent; and if three persons enter into partnership by a contract which provides that, on one retiring, one of the remaining two, or even a fourth person, who is no partner at all, shall name the successor to take the share of one retiring, it is clear that this would be a valid contract which the court must recognise and the new partner would come in as entirely by the consent of the other two, as if they had adopted him by name.”

In Byrne v Reid, (1902) 2 Ch. 735 case, where A, B, C and D were four partners and they, in their partnership deed, authorized 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 recognize him as a partner. It was held that the son on accepting the nomination had become a partner.

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) of the Act. 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:

Each partner is responsible for all the acts of the firm performed while being a partner. Once a person is admitted as a partner to the firm then he shall be jointly liable to the acts of the form only taking place from the date at which he has joined the firm. Therefore, it can be said that the legal liabilities of the partners who have recently joined begin only after he is admitted to the firm and not before that.

Nothing can, however, prevent a partner from agreeing 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.

This partner makes such an agreement with its co-affiliates, the creditors may make them liable if they can show that the incoming partner had agreed with them expressly or, implicitly, towards them for the acts done before his joining.

In Central Bank of India v. Tarseema Compress Wood Mfg. Co., AIR 1997 Bom. 225 case, after a fourth partner was admitted to a partnership firm, which earlier consisted of only three partners, all of them gave the following undertaking to the bank: “We are jointly and severally responsible to the bank for the liabilities of the firm with the bank. The bank may recover its claim and dues from any or all of the partners of the firm and the assets of any deceased partner.” The fourth partner in this case had undertaken liability which existed prior to his joining the firm and he was, therefore, held to be jointly and severally liable in respect of such liability.

The position of a minor becoming a partner under s 30 is, however, different. According to S 30 (7) (a) of the Act, 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.