DISSOLUTION OF PARTNERSHIP FIRM
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.
MODES OF DISSOLUTION OF A FIRM ARE
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.
Compulsory Dissolution: A firm may
be compulsorily dissolved:
when all the partners or all the partners except one become
(b) when business of the firm becomes unlawful.
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]
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
court finds dissolution of the firm justified.
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