What is Dissolution of Partnership Firm?

Dissolution of Partnership Firm:

According to section 39 of the partnership Act, 1932, “The dissolution of the partnership firm between all the partners of a firm is called dissolution of the firm.

The Indian Partnership Act, 1932 recognises the difference between the dissolution of partnership and dissolution of the firm.

When one partner dies, retires or becomes insolvent but the remaining partners continue to carry on the business of the firm, partnership ends but the firm is not dissolved.

Dissolution of partnership firm implies two things:

A)  Termination of Contractual relationship between all the partners.

B)  End of partnership Business.

Thus, dissolution of the firm does involve the dissolution of the partnership while the dissolution of partnership does not necessarily involve the dissolution of the firm.

Modes of Dissolution of Partnership Firm:

Following areas the dissolution of partnership firm:

1. Dissolution by agreement: A firm may be dissolved:

I)  With the Consent of all the partners.

II)  In accordance with a contract between the partners.

2. Compulsory Dissolution: A firm is compulsorily dissolved:

I)  By the adjudication as insolvent of all.   the partners or of all partners except one.

II)  By the happening of any event which makes it unlawful for the business of the firm to be carried on or for the partners to carry it on in partnership.

3. Dissolution on the Happening of certain contingencies: Subject to the contract between the partners, a firm can be dissolved by:

I)  The death of a partner.

II)  The insolvency of a partner.

III)  The retirement of a partner.

IV)  The completion of the adventure.

V)  The expiry of the term fixed.

4. Dissolution by Notice of partnership at will: If the partnership is ‘at will’ then any partner can get the firm dissolved by giving notice in writing to other partners of the firm.

5. Dissolution by Court: The Court may order the dissolution of the firm at the suit of a partner in any of the following ways:

I)  Where a partner of the firm has become of unsound mind.

II)  Where a partner of the firm has become permanently incapable of performing his duties as a partner.

III)  Where a partner commits wilful or persistent breaches of the agreement.

IV) Where a partner is guilty of misconduct.

V)  Where the business of a firm cannot be carried on save at a loss.

VI)  Where a partner has transferred the whole of his interest in the partnership to an outsider.

VII)  Where on any other groud the court is satisfied that it is just and equitable that the firm may be dissolved.

Related:

  1. WHAT IS PARTNERSHIP?
  2. WHAT IS PARTNERSHIP DEED?

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