Admission of a Partner Test - 3

When a new partner is admitted into the partnership firm, he brings some amount of premium for goodwill which will be shared/distributed by the sacrificing partners in their sacrificing ratio

Admission of a partner is one of the methods of reconstitution of a firm.  It means, it is the end of old partnership and beginning of a new partnership between all the partners including the new partner. 

When there is no proper guidelines or when there is no partnership deed or when partnership deed is silent on the issue of admission of a new partner. In such a case all provisions of the Partnership Act, 1932 will be applicable according to which a new partner can be admitted into the partnership only with the consent of all existing partners.

When a new partners is admitted into the partnership he brings some amount in cash as his capital and some amount for his share in goodwill. The amount he brings for the share of goodwill is known as premium for goodwill.

A new partner can acquire his share of profits from the old partners in their old profit sharing ratio or from one partner or from the old partners equally. But he cannot acquire his share of profit from the old partners in the new profit sharing ratio because new profit sharing ratio is fixed only after the admission of the new partner.

New profit sharing ratio is fixed after the admission of the new partner. It is the ratio in which all the partners including the new partner share profits. It is the ratio of the reconstituted firm. 

Sacrificing ratio refers to that ratio in which old partners will sacrifice their share in the favour of a new partner. To calculate the sacrificing ratio new share should be deducted from the old share of the existing partners’ i.e. old ratio – new ratio.

When a new partner is admitted, old partners will sacrifice some share in favor of new partner, the share they sacrifice in favor of new partner is known as sacrifice share or sacrificing ratio of the old partners.

At the time of admission of a new partner, the main use of sacrificing ratio is to adjust the premium for goodwill brought by a new partner.

Section 31of the Indian Partnership Act provides that a new partner shall not be inducted into a firm without the consent of all existing partners.The consent of all the existing partners is required for admission of a new partner.