What do you mean by incoming and outgoing partners ? What are the rights and liabilities of incoming and outgoing partners ?

Ans. Incoming Partner – It maybe noted that where a person becomes the member of a firm already constituted, he is known as incoming partner,  it is significant to note that a new partner can be admitted into a firm with the consent of all the partners. The relations of partners being those of trust and confidence, only such person can be admitted in whom all the partners have confidence. This is, how are, subject to a contrary arrangement between the partners. For there is nothing to prevent the partners from giving power to one or more ofthem of nominating a partner in the firm. Pollock & Mulla are of the opinion “that Where a person nominated is not acceptable to the other partners, the court cannot force them to enter into partnership with him, “because the foundation of partnership is mutual confidence, which the court cannot supply where it does not exist.”

According to S. 31 (1) subject, to the contract between the partners and to the provisions of S. 30, no person shall be introduced as partner and a firm without the consent of all the existing partners.

(2) Subject to the provisions of S. 30, a person who is introduced as a partner into a firm does not thereby become iiabie for any act of the firm done before he became a partner.

Liability of Incoming Partner—S. 31(2) provided that, “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.” .Thus, the liability of the new partner commences from the date of admission. lie is not liable for the pre-existing debts. He may, however, agree with his’partners to be liable for the debts incurred up to the date of his. admission But such an agreement is binding only upon the partners and does not give the right to any creditor to sue the new partner for past , debt In order to make the new partner able to the creditors for debts incurred prior to his admission, a complete novation must be proved and this requires two things.

Firstly, the new partner or the new firm as constituted after his admission should have assumed liability for the past debts.

Secondly, the creditors should be informed of the new arrangement and then the new partner becomes liable to those of the creditors who expressly or impliedly accept the new agreement.

For Example: in British Home Insurance Corpn. Vs. Paterson (1902), the plaintiff corporation appointed B Their solicitor and instructed him to act for them in a mortgage transaction. While the business was pending, B took the defendant P into partnership and gave the plaintiffs notice in writing. The plaintiffs paid no attention to the notice continued to correspond with 3 in his own name and finally sent the money to advance on the mortgage by cheque made payable to his order and accepted his receipt in his own name. B paid the money into his own account and misappropriated it. The plaintiffs sued the new partner. It was held that the plaintiffs had by their conduct declined to accept the liability of the new partner. They had elected to deal with the old partner alone and could not afterwards hold the new partner liable.

Outgoing Partner—An outgoing partner means a partner who has retired from a firm and the business is continued by the remaining partners.

Modes of Retirement of a Partner–A partner may retire from the firm in any of the following ways-

1. By Consent—According to S. 31 a partner may retire at any time with the consent of all his partners.

2. By Agreement-According to S. 32, where there is an agreement between the partners about retirement, a partner may retire in accordance with the terms of that agreement.

3. By Notice – According to S. 32, where the partnership is at will, a partner may retire by giving to his partners a notice of his intention to retire. It must, however, be noted that the. notice should be in writing, signed by the partner and should be served upon all the partners As between the partners, the retirement becomes effective from the date mentioned in the notice or, if no date is mentioned, from the date of service.

4. By Insolvency- According to the provisions of S. 34, there are two notable points. The first is that a partner ceases to be a partner from the date on which he is adjudicated an insolvent. This effect will follow whether the firm is dissolved or not. Secondly, where the firm is not dissolved, and consequently, therefore, it remains in business, the insolvent partner’s estate is not liable for any acts of the firm after the date of his insolvency. It is to be noted that the firm is not liable for any act of the insolvent partner.

5.By Death—According toS.35, where under a contract between the partners the firm is not dissolved by the death of a partner, the estate of a deceased partner is not liable for an act of the firm done after his death. 6. Expulsion-According to S. 33 expelled from a firm by any majority of partners. But a partner maybe expelled’in the exercise So good faith of the power of expulsion, if any, given to the partners by their mutual agreement.

Liability of Retired Partner-Outgoing liability may be considered under two heads—

1. Liability for Acts Done Before Retirement- It may be noted that a retired partner remains liable to the creditors for the acts of the firm done before and up to the date of his retirement. However, S. 32 (2) suggesting a way out says that a retiring partner maybe discharged from any liability to any third party for acts of the firm done before his retirement by an agreement made by him with such third party and the partners of there constituted firm, and such agreement may be implied by the course of dealing between such third party and the reconstituted firm after he had knowledge of the retirement. It must, however, be noted that a partner who has committed a tort or an infringement of a trade mark remains liable to the injured party even though he had retired before the suit was filed.

2. Liability for Acts Done After Retirement- According to S. 32 (3), a public notice of retirement should be given. The notice may be given either by the retired partner or by any partner of the reconstituted firm. It is in the interest of both. The consequences of default in giving public notice are twofold, namely, holding out of the retired partner and estoppel against the firm. . It must, however, be noted that public notice is necessary in the case of a deceased, insolvent and a dormant partner. The proviso to Sub-sec. (3) of S. 32 clearly says that “a retired partner is not liable to any third party who deals with the firm without knowing that he was a partner.”

Rights of Outgoing partner- The following two are the rights of the retired partner—i. Right to Compete—According to S. 36 (1) an outgoing partner may carry on a business competing with that of the firm and he may advertise such business, but subject to contract to the contrary, he may not–

(a) Use the firm name,

(b) Represent himself as carrying on the business of the firm, or

(c) Solicit the custom of persons who were dealing with the firm before he ceased to be a partner.

According to S. 36 (2) a partner may make an agreement with his partners that on ceasing to be a partner he will not carry on any business similar to that of the firm within a specified period or within specified local limits; and notwithstanding anything contained in S. 27 of the Indian Contract Act, 1872, such agreement shall be valid if the restrictions imposed are reasonable. Thus, the retired, partner has the right to carry on any business competing with that of the firm. He may set up his new business at a place next door to the firm or anywhere else. He may advertise his business and attract customers. This is necessary to assure freedom of trade to every individual.

2. Right to Share Subsequent Profit –According to S. 37, where any member of a firm has died or otherwise ceased to be a partner, and the surviving or continuing partners carry on the business of the firm with the property of the firm without any final settlement, of accounts as between them and the outgoing partner or his estate then, in the absence of a contract to the contrary, the outgoing partner or his estate is entitled at the option of himself or his representatives to such share of the profits wads since he ceased to be a partner as may be attributable to the use of his share of the property of the firm or to the interest at the rate of six per cent per annum on the amount of his share in the property of the firm-Provided that where by contract between the partners an option is given to surviving or continuing partners to purchase the interest of a deceased or outgoing partner, and that option is duly exercised, the estate of the deceased partner, or the outgoing partner or his estate, as the case may be, is not entitled to any further or other share of profits; but if any partner assuming to act in the exercise of the option does not in all material respects comply with the terms thereof, he is liable to account under the foregoing provisions of this section.