Answer the following questions in one sentence
(1) What is reconstruction of a partnership firm?
Answers
Answer:
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Explanation:
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Answer:
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Explanation:
The partnership is an agreement between two or more persons for sharing the profits of a business carried on by all or any one of them acting for all. Any change in the existing agreement is known as reconstitution of the partnership firm.
Often times the partnership firm goes through a restructure. This could be on account of admission of a partner, retirement of a partner or simply a change of terms between partners. This is known as reconstitution of a partnership firm.
Reconstitution of a partnership firm takes place whenever there is a change in the profit sharing ratio among the partners, admission of a new partner, retirement of a partner and death or insolvency of a partner.
Forms of Reconstitution of a Partnership Firm
Forms of Reconstitution of a Partnership Firm1. Change in the profit sharing ratio among the Existing Partners
Forms of Reconstitution of a Partnership Firm1. Change in the profit sharing ratio among the Existing PartnersSometimes the partners may decide to change their profit sharing ratio due to factors like change in their roles in the firm, change in their capital contribution ratio, etc. Any change in the old profit sharing ratio will amount to a reconstitution of the partnership firm.
Forms of Reconstitution of a Partnership Firm1. Change in the profit sharing ratio among the Existing PartnersSometimes the partners may decide to change their profit sharing ratio due to factors like change in their roles in the firm, change in their capital contribution ratio, etc. Any change in the old profit sharing ratio will amount to a reconstitution of the partnership firm.For example, A, B, and C were partners in a firm sharing equal profits. Due to some reasons, C shifts to another city and is therefore unable to take part in the business actively. Thus, it is decided that now the new profit sharing ratio shall be 2:2:1. This amounts to the reconstitution of a firm.
2. Admission of a Partner
2. Admission of a PartnerWhen a firm requires additional capital or managerial help it can admit a new partner in its business. As per the Partnership Act, 1932, a new partner can only be admitted unanimously unless otherwise provided in the partnership deed. When a new partner is admitted a new agreement is formed and thus the firm is reconstituted.
The new partner acquires the right to share the assets of the firm for which e brings in the capital and the right to share the future profits of the firm for which he brings Goodwill.
3. The Retirement of an Existing Partner
3. The Retirement of an Existing PartnerA partner may decide to retire or
withdraw from the firm due to reasons such as his age, his bad health, change in firm’s nature of a business, etc. In case of Partnership at Will, a partner may retire at any time. Retirement amounts to a reconstitution of a firm where the number of partners, their capital contribution ratio and also the profit sharing ratio changes. The retiring partner is paid his share of capital, goodwill and revaluation profit or loss.
4. Death or Insolvency of a Partner:
4. Death or Insolvency of a Partner:Death or insolvency of a partner also results in the reconstitution of the firm when the remaining partners wish to continue the firm. In case of insolvency, all dues are paid to the insolvent partner and partnership agreement is aborted because as per the law an insolvent is incompetent to enter into a contract or an agreement.