Dissolution of partnership means change in relationship among the partners but the firm continues. On the other hand, dissolution of firm means business of the firm is discontinued, i.e., closed and the firm is wound up, i.e., dissolved. According to Section 39 of the Indian Partnership Act, 1932, "Dissolution of the firm means dissolution of partnership among all the partners in the firm." In such an event, all assets of the firm are realized, i.e., sold and liabilities are paid. The Balance, if any, is paid to the partners in settlement of their accounts. If there is shortfall in meeting outside liabilities, it is met by the partners from their private assets.


1. By Mutual Agreement: A firm may be dissolved when all the partners agree for its dissolution. A partnership firm is set up by an agreement, similarly, it can be dissolved by an agreement.

2. Compulsory Dissolution: A firm may be compulsorily dissolved:

·       when all the partners or all the partners except one become insolvent.

·       (b) when business of the firm becomes unlawful.

3. By Notice: In case Partnership is at Will, the firm may be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the firm. [Section 43]

 4. On Happening of an Event: A firm may be dissolved in any of the following events, if the Partnership Deed provides:

·       on expiry of the term for which the firm was constituted.

·       on completion of the venture.

·       on death of a partner.

·       on adjudication of a partner as insolvent.

5. Dissolution by Court: Court may pass order for the dissolution of the firm when

·       a partner becomes a person of unsound mind.

·       a partner is permanently incapacitated.

·       a partner is found guilty of misconduct.

·       partnership agreement is breached persistently by some partner.

·       court finds dissolution of the firm justified.

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