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Unit 11: Types of Partners

An agreement presupposes a minimum number of two persons. As mentioned above, a Notes
partnership to arise, at least two persons must make an agreement. Partnership is the result of
an agreement between two or more persons. In this unit you will study about different types of
partners.

11.1 Changes in a Firm

The Act contemplates the following changes in a fi rm:
1. Change in the duration of a fi rm;
2. Change in the nature of business or undertakings, and
3. Change in the constitution of a fi rm.

A partnership may be entered into for a fixed period of time. When the fixed period is over,

it comes to an end. However, the partners may carry on the business even after the expiry of the

fixed period and the partnership becomes ‘partnership at will’. Sec.12(c) provides that subject to
contract between the partners no change may be made in the nature of the business without the
consent of all the partners.
11.1.1 Rights and Liabilities of Incoming Partners

Sec. 31 provides that subject to a contract between partners and to the provisions regarding

minors in a firm, no new partner can be introduced into a firm without the consent of all the

existing partners. Such a partner enjoys all the rights as are conferred upon him by the Act and
by the contract between him and the existing partners. The liability of a new partner ordinarily
commences from the date when he is admitted as a partner, unless he agrees to be liable for

obligations incurred by the firm prior to that date. But such an agreement is binding only on the

partners and does not give the right to any creditor of the firm to sue the new partner for past
debts of the firm. This is because there is no privacy of contract between the creditor and the

new partner. At the same time, the acts of the old partners cannot be ratified by the new partner.

This is in accordance with Sec. 196 of the Indian Contract Act, 1872, which provides that for the

purpose of ratification of agency, the principal must be in existence at the time when the act was
done.
11.1.2 Rights and Liabilities of a Retired Partner

An outgoing partner means a partner who has retired from a fi rm. The firm is reconstituted by
the remaining partners. Sec.32 contemplates three ways in which a partner may retire from the
fi rm, viz., (i) he may retire at any time with the consent of all other partners; (ii) where there is an
agreement between the partners about retirement, a partner may retire in accordance with the
terms of that agreement; (iii) where the partnership is at will, a partner may retire by giving to his
partners a notice of his intention to retire. Sec.32 clearly comprehends a situation where a partner
may retire without dissolving the fi rm.
Liability of the retired partner. Sec.32 provides that a retired partner continues to be liable for all

the acts of the firm done before his retirement unless he is discharged from his liability. He may

be discharged from liability to any third party for the acts of the firm done before his retirement
if (a) there is an agreement made by him with such third party and the remaining partners. (This
implies the principle of novation); (b) there is an implied agreement to the above effect. Such an
agreement may be implied by a course of dealing between such third party and the remaining
partners, after the third party had knowledge of the retirement.

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