Anita and Rahul are partners running a business. They decide to bring Sneha as a new partner.
What happens to the partnership when Sneha is admitted?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) - The existing partnership is reconstituted.
When a partnership firm undergoes reconstitution, it implies there are changes in the existing partnership agreement, such as the admission of new partners, retirement of existing partners, or changes in profit-sharing ratios. Thus, on the admission of the partner Sneha, old partnership is reconstituted.