DISSOLUTION OF A PARTNERSHIP FIRM

Prepared by, Anand Mohan & Ribi Ipe Kovoor

skill in some business. DISSOLUTION implies the undoing or breaking of a bond tie    .Meaning of Dissolution of a Partnership Firm  According to section 4 of the Partnership Act of 1932. This definition superseded the previous definition given in section 239 of Indian Contract Act 1872 as Partnership is the relation which subsists between persons who have agreed to combine their property. labour. and to share the profits thereof between them . The 1932 definition added the concept of mutual agency. "Partnership is defined as the relation between two or more persons who have agreed to share the profits and losses according to their ratio of business run by all or any one of them acting for all".

A dissolution of a partnership is the change in relationship of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of a business. the firm continues. Incase of dissolution of partnership. . not only partnership is dissolved but the firm also loses its existence. only the partnership relation is reconstituted. Incase of dissolution of firm.   A partnership dissolution does not mean the termination of the business.

Merger of one partnership firm into another. Admission of a new partner. Completion of a venture if partnership is formed for that. the economics basis of relationship of partners is reconstituted without affecting the entity of the firm which continues to remain in business as ever before. Adjudication of a partner as an insolvent.Dissolution of a Partnership In dissolution of partnership. Retirement of a new partner. A partnership is dissolved by change of mutual contract in the following cases:         Change in profit sharing ratio among partners. . Expiry of the period of partnership if partnership is for a prepredetermined period.42). Death of a partner (Sec. where atleast two persons remain as partners.

42 Dissolution by notice of partnership at will Sec. 40 Compulsory Dissolution Sec 41 Dissolution on the happening of certain contingencies Sec. Dissolution by Agreement Sec.43 Dissolution by the Court Sec.44      . or judicially. There are basically five modes of dissolution given under Sections 40 44 of the Indian Partnership Act.Dissolution of a Firm A partnership firm can be dissolved by many modes like by agreement on the happening of certain contingencies.

Partnership is cared by contract. By Agreement A firm may be dissolved any time with the consent of all the partners of the firm. it can also be terminated by contact .1.

Compulsory Dissolution A firm is dissolved  By the adjudication of all the partners or of all the partners but one as insolvent.2. . or  By the happening of any event which makes the business of the firm unlawful.

by the expiry of that term. Such a provision is valid. .  If constituted to carry out one or more adventures or undertakings. and By the adjudication of a partners as an insolvent. by the completion thereof: By the death of a partner. The partnership agreement may provide that the firm will not be dissolved in any of the aforementioned cases. On the happening of Certain Contingencies Subject to contract between the partners.3. a firm is dissolved  If constituted for a fixed term.

The firm is dissolved as form the date mentioned in the notice as the date of dissolution. if no date is mentioned.4. or. . as from the date of communication of the notice. By notice  Where the partnership is at will. the firm may be dissolved by any partner giving notice in writing to all other partners of his intension to dissolve the firm.

Dissolution by the Court At the suite of a partner.5. the court may dissolve a firm on any one of the following ground:        (A) Insanity (B) Permanent Incapacity (C) Guilty Conduct (D) Persistent Break of Agreement (E) Transfer of whole Interest (F) Loss (G) Just and Equitable clause .

Dissolution of Firm Basis 1. Dissolution of Firm Yes Assets are sold & realized and liabilities are paid off. A firm can be dissolved by the court s order. Not required as business is not terminated.Economic Relationship 5. Economic relationship may remain and/or change. Settlement of assets & liabilities 3.Closure of books Economic relationship between partners comes to an end. All books of accounts are closed. . Termination of business 2. 4.Dissolution of Partnership vs.Court s intervention Dissolution of Partnership No Assets & liabilities are revalued & new balance sheet is drawn Court does not intervene because partnership is dissolved by mutual agreement and through the process of reconstitution.

C.rajputbrotherhood. G.C.Sehrawat . S.Maheshwari.S. Partnership and Company Accounts. S.html  ACCOUNTANY.com/business/referen ce/The-Business-Mance/The-Business-ManEncyclopedia/Dissolution-OfEncyclopedia/Dissolution-OfPartnership.com/eng/ar ticles/dissolution-of-partnership-firm.References  http://www.html ticles/dissolution-of-partnership http://chestofbooks.Jain.

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