Reconstitution of Partnership Firm :
(a) Working Capital Advance :
Whenever the partnership firm is reconstituted on account of death, retirement, expulsion/admission etc. of partner(s) pending sanction of limits to the reconstituted firm, obtention of fresh documents and transfer of outstanding balances to the new account, a letter of continuity should be obtained from all the incoming and outgoing partners as an interim measure before allowing operations in the existing accounts. If advances to the dissolved firm are secured by way of third party guarantee as collateral security, a letter to confirmation must be obtained from the guarantor(s) before operations are allowed on the accounts of the reconstituted firm. Even in cases where a continuing guarantee with suitable modifications should be obtained. These formalities are required to be completed within a period of two months.
(b) Medium Term Loan :
In respect of outstanding term loans, there is no need to obtain fresh set of security documents. A supplementary stamped agreement should be obtained. It should be executed by the continuing partners, incoming partners and the guarantor(s), if any, at the time of obtaining fresh documents for working capital limits granted to the reconstituted firm.
(c) Minor in a Partnership Firm :
Section 30 of the Indian Partnership Act (Act No. IX of 1932) provides that where a minor is admitted to the benefits of partnership, the share of such minor is liable for the act of the firm, but the minor is not personally liable. A minor who has been admitted to the benefits of partnership may within 6 months of attaining his majority or obtaining knowledge that he has been admitted to the partnership give the public notice that he has elected to become a partner or that he has elected not to become a partner provided if he fails to give such notice, he shall on the expiration of the said 6 months become a partner in the firm, and where in such case he becomes a partner, he becomes personally liable to third parties for all acts of the firm done since he was admitted to the benefits of partnership. Where such ex-minor elects not to become a partner, his share shall not be liable for any acts of the firm done after the date of the notice aforesaid.
It is, therefore, essential to diarize the date on which the minor partner will come of age. The following fresh letters should be obtained after the minor partner attains majority to bind him for the liabilities of the firm :
(a) Partnership Letter;
(b) The ex-minor should sign the existing partnership letter in ratification of previous transactions; and
(c) Partner’s Individual Guarantee.