= . 6 ‘ pISSOLUTION OF FIRM NieaninS —_:ccolution means discontinual . The dissolution may be of a Fit rtner dies, retires or becomes insolvent but The terre a firm. When one Pal i of a firm. 1 " . artes ener continue the business, it Is called dissolution of partnership bee Tiners comes to an end and the business is ni relationship between all the pal ees, it is called dissolution of firm. unds of Dissolution : ' Crore grounds or modes of dissolutiot solution by Agreement ‘A firm may be dissolved with consent ofall the partners or in accordance with a contract between the partners. [Sec. 40} : 2, Compulsory Dissol ‘A compulsory diss When all the partners are b. When all except ‘one of th When business of the firm becomes contingent Bissolut ad a Subject to contract between the partners, a firm may or. may not dissolve under the following ‘circumstances; [Sec. 42) a. On expiry of fixed period for which the firm was formed. b. Oncompletion of the project for which the firm was formed. c. Ondeath of a partner. d. On insolvency of any partner. 4. Dissolution by-Notice : a When the partnership is at will, the firm may be dissolved by any partner re f wa ee writing to all the other partners of his intention to dissolve the See issolved from the date mentioned in the notice. \f no date is ned, it dissolves from the date of communication of the notice. {Sec. 43] 5. Dissolution by Court The court decides ab i ‘i 7 ecides about dissolution of the firm aes regarding dissolution. For example, when a partner bet partners are willing to continue while others insist on diss‘ \n of firms are as follows: 4, Dis ution < ‘olution takes place under declared insolvent. e’partners are declared insolvent. 5 unlawful. [Sec. 41] 1 following citcumstances: if there is dispute among comes insane ‘olution of the 45 Scanned with CamScannerDissolution of Firm fe any of the following grounds on a suitfiled | firm. The court may dissolve a fim on by any of the partners: [Sec, 44] a." Insanity issolution of th When a partner becomes insane, the court may alow. a the firm. "® firm. However, temporary sickness is no grounds for diss b. Permanent Incapacity . forming his duties When a partner becomes permanently incapable of pe 9 #5 3 partner, the Court may order dissolution of the firm. icrre ly affect : “When partner is guilty of misconduct which is likely to adversely the Feputation of the firm, the Court may dissolve the firm. d. Bi ich of Agreement i jer iiss a partner commits breach of agreement relating to management of le, @ partne, the affairs of the ficm, the Court may dissolve the firm. For example, pi r Uses firm's money 10 ay personal debl. ones of titarest of his interest in the firm to a third party When a partner transfers whole without consent of other Partners, the-Court may dissolve the firm. f. Continuous Losses When business of a firm cannot be carried on except at a loss, the Court may order for dissolution of the firm. g- Just and Equitable fee . When on any other ground, the. Court considers it just and equitable that the firm should be dissolved, the Court may dissolve the firm. For example, Partners are not on Speaking terms with each other. [Sec. 44) Consequences of Dissolution The following are consequences of dissolution: 1. Partners on Dissolution : The partners of the dissolved firm Continue to be liable to third parties for. SRG one in connection with the afta co the firm until public notice is given of dissolution. But estate of a partner wh dies or becomes insolvent or a sleeping 2. Application of Property On a he ee Partner or his representative is entitled to and proceeds a; li i fir fo distribute the oc Pplied to Tepay outside debts ra plus amon, th i Nights. [Sec] 4g 9 the partners or their OE oP ney Th Scanned with CamScanner— fF pissolution of Firm rine tinues tO ner contin Ds Continuing Authority unary of 02 PAT at the Lime a Ate gm erm Spiete unsinishe? bi wind up the Sraissolution. (Sec. 47] ' firm, he has i ™, 4, Personal Profit the goodwill of the Tm: 7 a partner buys = if on dissolution of the firs on personal profits. [Sec- 50] : rtnership for 2 sht to use the firm's nam nd of Premium . a "when a partner has paid premium on entering me aa ei arg otherwise xed period, and the firm is disso expiration Of PS enim for fixe by death of any partner, 6 pe entlled 10 refund Ot ficed due to ire pired period. But he-cannot he shall Pemium if dissolution ST be made. Hig misconduct or under an Mreement that no rerund of pr the rig! 5. Der on ‘fraud oF [Sec 51] 6. Fraud and Misrepresentation : oe tract creating the partnershiF is I aration, 2 A ct ie contract. A partner has the following entation, a partner can reje m, remaining. after. misreprest in the firm rights: [Sec. 52] He has a right of lien on surplus payment of debts, for any sum paid Snd capital contributed by:him. . da creditor of the firtn ini feSPe of the firm. 10 be indemnified by the partners guilty of fraud oF bts of the firm. the- fir s or assets of i nase of share it a by him for purcl b. He is consideret ct of any payment made by him to pay the debts He is entitled t misrepresentation against all det Firm’s Name or Property Every partner. or his representative is entitled to restrain other partners from carrying on similar business in the name of the firre-or from using property of the firm for their own benefit, until affairs of the firm have been completely would up. [Sec. 53] Settlement of Accounts on Dissolution The following are modes of settlement of accounts on dissolution: 1 4. Sharing of Deficiency If dssets of a firm are insufficient to iabili mn i pay the debts and liabilities of tl oan ihe losses or firm including deficiency of capital shal! be paid first Oat , then out of capital and lastly by the partners individually in their profit sharing ratio. (Sec. 48(a)] 2. Application of Assets Thi i i e assets of a firm including any sums contributed by the partners to Scanned with CamScannerDissolution of Firm | 48 : 2 make up deficiency of capital shall be ‘applied in following manner: [Sec. 48(b)] a. In paying debts.of the firm to third parties. : . Ee b. In paying to each partner ratably on account of advances given by him to the firm. : c. liv paying to each partner ratably what is due to him on account of bel : d. The surplus,.if any, shall be divided among the partners in their profit sharing ratio. : 3. Payment of Debts ‘ : : : When a firm is dissolved, the payment of debts shall be as under: a. Firm's property shall be used to. pay debts of the firm. If there is surplus, share of partner shall be used to pay his private debts or topayhim. _ “b. Private property of partner shall be used to pay private debts. If there ‘is surplus, it shall be used to pay the debts of the firm. [Sec. 49] 4, Sale of Goodwill in settling accounts of the firm after dissolution, the goodwill shall be included in the assets and may, be sold either separately or along with other property of the firm. [Sec. 55(1)] p QUESTIONS 4. Explain the grounds on which a firm may be dissolved. 2. Explain the consequences of dissolution of firm. ; 3. Explain the rules of settlement of accounts of firm. Scanned with CamScanner