The partnership deed is an agreement between two or more persons sharing the profits of a business carried by all the parties. Reconstitution deed of partnership firm is a deed which is executed when partners decide to change the existing agreement. Hence, ending up the existing agreement and execution of a new agreement to change the relationship among the members of the partnership firm. The reconstitution deed is drafted when there is a change in profit sharing ratio among the partners, retirement of a partner, death or insolvency of a partner or the admission of a new partner.
NEED OF RECONSTITUTION DEED OF PARTNERSHIP FIRM
1. Profit Sharing Ratio:
When the partners decide to change the profit-sharing ratio due to their change in roles, change in capital contribution, etc., the deed of reconstitution of a partnership deed is executed.
2. Admission of a new partner:
A new partner can be admitted in the business when a firm requires additional capital or managerial help. As per the Indian Partnership Act,1932, a new partner can be admitted unless the provision is specified in the partnership deed. The new partner gets the right to share the assets of the firm and the right to share the future profits of the firm.
3. The Retirement of a partner:
A partner may decide to retire from the firm due to various reasons such as bad health, change in nature of business of a firm. The retirement of a partner leads to the reconstitution of the firm where the counts of the partner change along with the profit-sharing ratio and capital contribution ratio. The retiring partner is paid his goodwill, revaluation profit or loss and share of capital.
4. Insolvency or Death of a Partner:
Insolvency or death of partner results in the reconstitution of the firm where the remaining partners wish to continue the firm. In case of death, all dues are paid to the legal heir of the deceased partner.
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