A, B and C are partners in a firm. If B is being retired from the firm, what would be its effect?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Old partnership would be reconstituted
The terms "firm" and "partnership" have distinct meanings. A partnership refers to the legal agreement and relationship between individuals who have agreed to carry on a business. The firm is the collective name under which the business is conducted. The retirement of a partner, along with the admission of a new partner or a change in the profit-sharing ratio, is a mode of reconstitution of the partnership. It marks the end of the old partnership agreement, but the business of the firm itself continues with a new agreement between the remaining partners (A and C).