Dissolution of partnership firm

CONTENTS Partnership

Types of partnershipDissolution

Modes of dissolutionOrder by court

without intervention of courtCircumstances of dissolution

Distinction between dissolution of partnership and

dissolution of firmDissolution of partnership

Dissolution of partnership firm

A partnership is a strategic alliance or relationship between two or more people. Partnerships can be formal, where each party's roles and obligations are spelled out in a written agreement, or informal, where the roles and obligations are assumed or agreed to verbally

Two types of partnershipGeneral

parnership Limited

partnershipA general partnership consists of two or more people who go into business together and share in the profits. The general partners are each involved in the business operations and share liability on the business obligations.

A limited partnership consists of one or more general partners and at least one limited partner. The general partners handle the business operations and share in liability. The limited partners contribute capital to the business, but do not get involved in the everyday functions and have only a limited liability

What is dissolution? In law, means to end a legal entity or agreement.

•When the relation between all the partners of the firm comes to an end, this is called dissolution of the firm. Section 39 of the Indian Partnership Act, provides that “the dissolution of the partnership between all the partners of a firm is called the dissolution of a firm.” It implies the complete break down of the relation of partnership between all the partners.

Mode of dissolution

Two ways

By order of the court

Without intervention of the court

Cont….

By order of the court

A partner may apply to the court for getting the firm dissolved. On getting such application by any of the partner the court may proceed to order the dissolution of the firm in the following circumstances: 1) If any of the partner becomes of unsound mind 2) If a partner, other than the partner filing the suit is guilty of intentionally and persistently committing a breach of the partnership agreement. 3) If a partner, other than the partner filing the suit has transferred whole of his interest in the firm to a third party without the consent of the other partners. 4) If a partner, other than the partner filing the suit is guilty iof misconduct. 5) If a partner, other than the partner filing the suit has become disabled to perform his duties as a partner. 6) If the court is satisfied that the business of the frim cannot be carried on except a loss.

Without intervention of court

1) If all the partners are willing and hereby agree to dissolve the firm. 2) In the following circumstances: a) On the death of any partner. b) If any partner becomes insolvent. c) On the expiry of the duration of the firm. d) On the completion of the venture.

Circumstances Of

dissolution

The Dissolution of Partnership takes place under following circumstances:

a) when the firm was constituted for a fixed term, on the expiry of that term.b) on the completion of particular venture,if constituted for a purpose.c) on the death of a partner. d) on the insolvency of a partner.e) on the retirement of a partner.

Distinction between dissolution of partnership and

dissolution of firm

However, there is a difference between ‘dissolution of partnership’ and ‘dissolution of the partnership firm’. The former indicates ending of agreement only to replace it with a new one, but the latter indicates the ending of partnership business altogether. The following points may be noted in comparison between the two:-

Cont…

DISSOLUTION OF PARTNERSHIP

1. Only the agreement is dissolved, no physical disposal takes place.2. The partners will continue to run the business with a new agreement.3. Limited effect on employees or debtors and creditors of the business4. Many dissolutions of agreement can take place during the life of a partnership business. 5. Admission, retirement and or death of a partner can result in compulsory dissolution of existing agreement.

Dissolution of partnership firm1. The Firm is dissolved, by selling off assets and settling liabilities.2. The partners will discontinue the business3. Since the business is closed down it affects the workers, debtors and creditors of the firm4. Dissolution of firm can take place only once in the lifetime of a partnership business.5.None of these events can lead to a compulsory dissolution of the firm.