Can new partner be added with retrospective effect.
Mitesh
(Querist) 10 July 2014
This query is : Resolved
Dear All,
In a partnership firm 2 partners are doing a business since past 15 years. A new family member is inserted as third partner is inserted on 01.01.2014. There is no family dispute, and partners do not have any objection in considering the third partner w.e.f. 01.04.2013.
Can a deed be executed in consent of all partners for inserting third partner with retrospective effect?
A.K.PRASAD
(Expert) 10 July 2014
how you will get the stamp paper of that date?
Guest
(Expert) 10 July 2014
Two pertinent questions arise our of your query --
(1) Had the proposed third partner made any investment in the business on or before 01.04.2013? and
(2) Is there not any intention on the part other partners of the firm to evade tax by diluting profit income of the firm/partners for the previous year 2013-14?
Please clarify on these two points.
Rajendra K Goyal
(Expert) 10 July 2014
Why the person is to be added from back date?
Devajyoti Barman
(Expert) 10 July 2014
Partners can be made liable for past acts of the firm if the new partner agrees for it.
You do not need to give any past date for this.
Read the chapters regarding Reconstitution of Firm. You need not be a lawyer for reading this.
Guest
(Expert) 11 July 2014
Mr. Mitesh,
Your clarification is still awaited.
Mitesh
(Querist) 11 July 2014
Thanks All for responding to my queries,
Dear Mr. Dhingra,
As requested, please find clarification for your detailed queries to my question:
1) Third partner has introduced capital on 01.01.2014. He has not introduced any capital before that.
2) There is no intention of dilution of profit. There has not been much profitability in the business, and existing partners are senior citizens, so in all the case, the income is fully exempt. Further, new partner is second generation family member, plan is to introduce 2nd generation in the business.
Auditor said that, if partner's introduction is in mid of year, then two separate financials will have to be made. So just to simplify the annual accounts, existing partners decided to induct new partner from the beginning of the year.
All partners are family members, and there has been no dispute in profit sharing / tenure.
Hope, Mr. Goyal's query is also answered with my above clarification.
Guest
(Expert) 11 July 2014
Mr. Mitesh,
I don't find any objection in the revised partnership deed to be made effective from retrospective effect, if cogent reason is provided in the deed and entitlement of share in the profit on prorata basis from the date he introduced his share of capital.
However, if the previous partners don't want new partner's introduction in mid of year, what was the harm in introducting him as such with effect from 01.04.2014 instead from the retrospective date and treating his invested money as interest bearing loan to be adjusted in the share money due from him from the date of introduction?
Mitesh
(Querist) 14 July 2014
Dear Mr. Dhingra,
Thanks for your suggestions. I think this 2nd proposal of yours (to induct from 1.4.2014) is a next logical proposition.
I thank you, Mr. Barman and others for giving me their valuable inputs.
Rgards
Mitesh
