The
dissolution of partnership between all the partners of a firm is called the
dissolution of the firm.
The
law recognizes the difference between a dissolution of the firm and dissolution
of partnership which may be as follows
(A) Dissolution
of a firm takes place when the business of the firm comes to an end as a result
of the dissolution but dissolution of partnership does not necessarily mean the
cessation of business of the firm. Thus if partners have agreed that inspire of
the death, insolvency or retirement of a partner, the firm shall continue its
business, there is a dissolution of partnership but no a dissolution of the
firm, as the business of the firm continues.
Different modes of dissolution of “Partnership Firm”
1.
Dissolution by Agreement
A
partnership may be dissolved with the consent of all the partners, or it may be
dissolved in accordance with a contract among the partners to this effect.
2.
Dissolution by Notice
Where
a partnership is at will, the firm may be dissolved to any partner giving
notice in writing to all the other partners of his intention to dissolve the
firm and the firm is dissolved as from the date mentioned in the notice. If the
date of dissolution is not mentioned in the notice, then from the date of the
communication of the notice.
3.
Contingent Dissolution
A
partnership firm may be dissolved on the happening of the following events
i.
At the expiry of the period fixed for the partnership firm.
ii.
At the completion of the adventure or undertaking for a particular object for
which the partnership was formed.
iii.
Where a partner has become incapable of performing his partnership duties
properly. Since the partner is unable to fulfill on of the important classes of
the partnership agreement that is to devote his time, energy, efforts and
capabilities to the success of the partnership firm, the firm in dissolved.
iv.
On the death or retirement of a partner.
v.
By the adjudication of a partner as an insolvent.
vi.
When the partnership itself has been declared as insolvent.
4.
Compulsory Dissolution
The
following are the grounds for a compulsory dissolution of a partnership firm
i.
When all the partners or all but one have been adjudicated to be insolvent by a
Court of law.
ii.
Where such an event has happened which makes it unlawful to carry on the
partnership business.
5.
Dissolution by Court
Where
a partner files a suit, the court may dissolve the partnership on the following
grounds
i.
Where one of the partners has become of unsound mind that is mad.
ii.
Where a partner is guilty of misconduct a breach of contract in the matter of
running the partnership business.
iii.
Where a partner intentionally commits a breach of contract in the matter of
running the partnership business.
iv.
Where a partner transfer his share in the partnership without the consent of
all the other partners.
v.
Where the interest of a partner in the firm has been charged by the court from
his debts.
vi.
Where it is reasonably certain the at the partnership cannot be carried on
except at a loss.
vii.
When any partner becomes permanently incapably of performing his duties as a partner
or mad.
viii.
On another grounds considered fit by the court of law. Breach contract by any
partner misconduct of partners.
Any
partner transfer of share to any other person without the consent of other
partners or others grounds court thanks fit.
Settlement of Accounts on dissolution
Following
are the rules to be observed in settling the accounts of a firm after its
dissolution, subject to any agreement by the partner contrary to it.
1.
Losses, including deficiencies of capital shall be paid first out of the
profits, next out of capital and lastly, if necessary, by the partners
individually in the proportions in which they are entitled to share the profits.
2.
The assets of the firm, including any sum contributed by the partners to make
up deficiencies of capital shall be applied in the following ways.
a.
in paying the debts of the firm to third parties.
b.
in paying to each partner ratably what is due to him from for advances
distinguished from capital.
c.
in paying to each partner ratably what is due to him on account of capital .
d.
The residue, (the remaining) if any, shall be divided among the partners in the
proportions in which they were entitled to share the profits.
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