Final answer:
When a new partner buys into a company, the money from the purchase goes directly to the old partner who is selling part of their capital account. The company does not receive this money, akin to how the sales of stock in the open market do not financially benefit the company after initial issuance.
Step-by-step explanation:
When a new partner buys part of an old partner's capital account in a business, the money paid for that purchase is owed directly to the selling partner, not to the company itself. This is akin to buying shares from an existing shareholder in a public company; the company doesn't receive new funds from such transactions.
In more detail, if you think of a company as a house, when you buy the house, you pay the current owner, not the builder. Similarly, if a new partner buys into a company, they buy from the current partner, and that money goes to the exiting or selling partner, potentially less any fees or taxes that may be applicable.
This is contrasted with when a company initially sells shares during an IPO (Initial Public Offering) or when a private company admits a new partner and receives fresh capital; in those cases, the company itself does receive money directly. However, once the shares or interest are in the hands of private owners, subsequent transfers of ownership do not involve financial returns to the firm itself.