A, B and C are partners in a firm. If D is admitted as a new partner, what will be its affect?

When D is admitted as a new partner in the firm consisting of A, B, and C, the old partnership is reconstituted.

This means:

The partnership agreement that existed between A, B, and C comes to an end, and a new partnership agreement comes into existence with A, B, C, and D as partners. However, the firm itself continues to exist as the same business entity.

Understanding the difference:

Partnership refers to the relationship and agreement between the partners. When a new partner joins, this relationship changes, so the old partnership is dissolved and reconstituted.

Firm refers to the business entity itself. The firm continues its existence despite the change in partners. The assets, liabilities, and business operations continue without interruption.

For example, if ABC & Co. is the firm name, it remains ABC & Co. even after D's admission. Only the internal partnership arrangement changes from 3 partners to 4 partners.

This is why Option 3 is correct – the old partnership is reconstituted (dissolved and reformed with new terms), while the firm maintains its existence and continues its business operations.