Dissolution of a Partnership
The relation of partnership among different partners is changed without
changing the partnership firm. Thus, in case of dissolution of partnership, the
economic basis of relationship of partners is reconstituted without affecting
the entity of the firm which continues to remain in business as ever before. A
partnership is dissolved by change of mutual contract in the following cases :
1.Change in profit sharing ratio among partners;
2.Admission of a new partner;
3.Retirement of a partner, where at least two persons remain as partners;
4.Death of a partner (Section 42);
5.Adjudication of a partner as an insolvent;
6.Completion of a venture if partnership is formed for that;
7.Expiry of the period of partnership if
partnership is for a pre-determined
period;
8.Merger of one partnership firm into another.
Dissolution of a Firm
Dissolution of a firm takes place in the following cases :
(1) Dissolution by agreement
: A firm is dissolved in case :
(a) All the partners give consent to it, or
(b) As per the terms of partnership agreement.
(2) Compulsory dissolution
: A firm is dissolved compulsorily in the following
cases :
(a) Where all the partners or all except one partner, become insolvent or
insane rendering them incompetent to sign a contract;
(b) Where the business becomes illegal;
(c) Where all the partners except one decide to retire from the firm;
(d) Where all the partners or all except one partner dies;
(e) Where the partnership deed includes any provision regarding the
happening of the following :
(i) Expiry of the period for which the partnership was formed;
(ii) Completion of the specific venture or project for which the firm
was formed.
(3) Dissolution by notice
: In case of partnership at will, the firm may be
dissolved if any of the partners gives a notice in writing to the other partners
signifying his intention of seeking dissolution of the firm.
(4) Dissolution by court
: A court, may order a partnership firm to be dissolved
(under Section 44), in case of a suit by a partner in the following situations :
(a) A partner becomes insane;
(b) A partner becomes permanently incapable of performing his duties
as a partner;
(c) A partner deliberately and consistently commits breach of agreements
relating to the management of the firm;
(d) A partner’s conduct is likely to adversely affect the business of the firm;
(e) The partner transfers whole of his interest in the firm to a third party;
(f) The business of the firm cannot be carried on, except at a loss;
(g) The court, on any ground, regards dissolution to be just and
equitable.
