Dissolution of A Partnership Firm

There are many consequences where the partners feel the need to close the partnership firm. As per our Partnership Act the closure of firm is termed as dissolution of firm. In the words of bare act “The dissolution of partnership between all the partners of a firm is called the dissolution of the firm.” There are some ways to dissolve the partnership firm which are as follows :-

a.) Dissolution by mutual Agreement :

The very first and easy way to dissolve the firm is dissolution by agreement. A firm may be dissolved with the consent of all the partners. Or partners may enter into an agreement to dissolve the firm.

b.) Compulsory dissolution :

A firm may be dissolved :

1. by the adjudication of all the partners or not of all the partners but one as insolvent, or

2. by the happening of any event which makes it unlawful for the business of the firm to be carried on or for the partners to carry it on in partnership:

Provided that, when more than one separate adventure or undertaking is carried on by the firm, the illegality of one or more shall not of itself cause the dissolution of the firm in respect of its lawful adventures and undertakings.

c.) Dissolution on the happening of certain contingencies.

A firm is dissolved—

1. if constituted for a fixed term, by the expiry of that term;

2. if constituted to carry out one or more adventures or undertakings, by the completion thereof;

3. by the death of a partner; and

4. by the adjudication of a partner as an insolvent.

d.) Dissolution by notice of partnership at will.

1. Where the partnership is at will, the firm may be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the firm.

2. The firm is dissolved as from the date mentioned in the notice as the date of dissolution or, if no date is so mentioned, as from the date of the communi­cation of the notice.

e.) Dissolution by the court- At the suit of a partner,

the court may dissolve the firm on any of the following grounds, namely:—

1. that a partner has become of unsound mind in which case the suit may be brought as well by the next friend of the partner who has become of unsound mind as by any other partner;

2. that a partner, other than the partner suing, has become in any way permanently incapable of performing his duties as partner;

3. that a partner, other than the partner suing, is guilty of conduct which is likely to affect prejudicially the carrying on of the business, regard being had to the nature of the business;

4. that a partner, other than the partner suing, willfully or persistently commits breach of agreements relating to the management of the affairs of the firm or the conduct of its business, or otherwise so conducts himself in matters relating to the business that it is not reasonably practicable for the other partners to carry on the business in partnership with him;

5. that a partner, other than the partner suing, has in any way transferred the whole of his interest in the firm to a third party, or has allowed his share to be charged under the provisions of rule 49 of Order XXI of the First Schedule to the Code of Civil Procedure, 1908 (5 of 1908), or has allowed it to be sold in the recovery of arrears of land revenue or of any dues recoverable as arrears of land revenue due by the partner;

6. that the business of the firm cannot be carried on save at a loss; or

7. on any other ground which renders it just and equitable that the firm should be dissolved.