Dissolution of Partnership
Dissolution of Partnership is different
from the dissolution of partnership firm. It is due to the fact that when the
relation present between all partners, comes to an end, it is known as dissolution of firm. When any
one of the partners become incapacitated, then the partnership comes to an end,
but the firm may continue to operate, if new partnership is arranged among the
firm means dissolution
of partnership. On dissolution of firm, partnership business comes to an
end. Its assets are realised and the creditors are paid off. The business
cannot be continued after dissolution of partnership firm. For example A, B and
C are partners in a business. If all the three partners decide to dissolve, it
is known as “dissolution of the firm”.
Dissolution of partnership means the termination of the original partnership agreement. A partnership is dissolved by insolvency, retirement, expiry or completion of the term of partnership. The business will continue after dissolution of partnership. For example: A, B and C are partners in a business. If ‘A’ retires, ‘B’ and ‘C’ can continue the business which is known as dissolution of partnership.
The various circumstances leading to
dissolution of partnership firm can be summarised by taking the first letters
used in the term “Dissolution”.
D - Death of partner
I - Incapacity of a partner
- Stipulated period of
partnership completed in the case of particular partnership
S - Serious misconduct of a partner
O - Object is completed (Particular
L - Lunacy of a partner
U - Unavoidable continuous loss
T - Transfer of interest of the firm
I - Insolvency of a partner
O - Objectionable unlawful objectives
N - Notice of dissolution by a partner.
The fundamental difference between the
dissolution of partnership and dissolution of the firm is that when the
partnership is dissolved, there is no other dissolution, but when the firm is
dissolved, partnership too comes to an end.
Change in the existing profit sharing
Admission of a Partner
Retirement or Death of a Partner
Insolvency of a partner.
Expiry of the term of the partnership.
Completion of the specified venture.
Dissolution by agreement.
a. without the order of the court and
b. By order of the court.
A firm may be dissolved when all the
partners agree to close the affairs of the firm. Just as a partnership is
created by contract, it can also be terminated by contract.
If any of the partners adjudged an
insolvent (or if all the partners become insolvent) it is necessary to dissolve
When the business carried on by the
partnership becomes illegal, the partnership firm is automatically dissolved.
In the case of partnership at will when
any partner gives in writing to all the other partners indicating his intention
to dissolve the firm, the firm will be dissolved.
Dissolution of partnership itself may
involve the dissolution of the firm unless parties agree to continue it
otherwise, it will take place.
On the expiry of a specified period in
case of partnership for a fixed term.
On the completion of a particular adventure
for which it has been formed
in case of particular partnership.
On the death of a partner.
On the retirement of a partner.
On the insolvency of a partner.
In all the above cases if the
business is not continued by the
remaining partners, dissolution of the firm takes place automatically.
The court may order dissolution of a firm
at a suit of a partner in any of the following circumstances.
When a partner becomes insane
Permanent incapacity of any partner
Misconduct of any partner
Breach of agreement which makes the
Transfer of interest to third person
When the court finds that it is just and
equitable to dissolve the firm