DISSOLUTION OF PARTNERSHIP :
Dissolution of a firm means that the business of the firm is put to an end, assets are disposed of, liabilities are paid off, and the accounts of all the partners are also settled. Dissolution of a firm differs from dissolution of a partnership. A partnership is dissolved on the expiry of the term or on the completion of the specified venture, death, retirement or insolvency of a partner. However if the remaining partners decide to continue to run the business, the partnership firm is not dissolved. If they do not continue, then the firm is also dissolved automatically. Thus, there is difference between dissolution of partnership and dissolution of firm which may be summarized as under:
– In case of dissolution of firm, the firm ceases to continue its business i.e. the business comes to an end. But in the case of dissolution of partnership, the business of the firm is continued.
– In dissolution of firm, the partnership among all the partners no longer exists while in case of dissolution of partnership, the partnership among all the partners does not come to an end.
– Dissolution of partnership does not necessarily mean dissolution of firm whereas dissolution of firm necessarily implies dissolution of partnership.
A firm is dissolved when:
– the partners of the firm decide to dissolve it,
– all the partners or all the partners except one become insolvent,
– the business of the firm is declared illegal,
– in case partnership at will, a partner gives notice of dissolution,
– The Court may order dissolution of the firm which may happen in the following circumstances:
(a) where a partner has become of unsound mind,
(b) where a partner suffers from permanent incapacity,
(c) where a partner is guilty of misconduct affecting the business,
(d) where there is persistent disregard of partnership agreement by a partner,
(e) where a partner transfers his interest or share to a third person,
(f) where a business cannot be carried on except at a loss, and
(g) where a dissolution appears to the Court to be just and equitable on any other ground.