What happens when there is a change in the partnership agreement of a partnership firm?

A new agreement is formed, but the firm continues to operate

The correct answer is option 2- A new agreement is formed, but the firm continues to operate.

When there is a change in the partnership agreement of a partnership firm, A new agreement is formed, but the firm continues to operate.

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.