In a partnership firm, what is the impact of reconstitution on the firm's existence?

The Partnership firm continues to operate with a changed relationship among partners

The correct answer is option 2- The Partnership firm continues to operate with a changed relationship among partners.

Reconstitution of a partnership firm does not lead to the firm ceasing to exist, becoming a corporation, or transferring its assets and liabilities to a new entity. Instead, the reconstitution signifies a change in the existing agreement among the partners, which results in a modified relationship among them.

Partnership is an agreement between two or more persons (called partners) for sharing the profits of a business carried on by all or any of them acting for all. Any change in the existing agreement amounts to reconstitution of the partnership firm. This results in an end of the existing agreement and a new agreement comes into being with a changed relationship among the members of the partnership firm and/or their composition. However, the firm continues. The partners often resort to reconstitution of the firm in various ways such as admission of a new partner, change in profit sharing ratio, retirement of a partner, death or insolvency of a partner.