The dissolution of a partnership firm takes place when the relationship between the partners of a firm is dissolved or terminated. The article discusses the primary ways of dissolution i.e by Court intervention or otherwise. And further, the steps involved in both the ways have been briefly explained in the article to facilitate the dissolution process.
By: Naman Gujral, Delhi Metropolitan Education.
In India, it is very often that the partners of a partnership firm have arguments or disputes among each other which results in the dissolution of a partnership.
The dissolution of a partnership firm is a process in which the relationship between partners of a firm is dissolved or terminated. If a relationship between all the partners of a firm is dissolved then it is known as the dissolution of the firm.
The dissolution of a partnership generally occurs when one of the partners ceases to be a partner in the firm.
Other causes of dissolution are the Bankruptcy or death of a partner, an agreement of all partners to dissolve, or an event that makes the partnership business illegal. A suit can be filed in the Court for the dissolution of the firm to have a final decree.
Section 44 of the Partnership Act, 1932 provides a provision for the dissolution of the firm by Court.
Dissolution of a Partnership firm may be affected in the following ways:
- Dissolution without the intervention of the Court.
- Dissolution by Court
A. Dissolution without the intervention of Court
- By Agreement
- Compulsory Dissolution
- Insolvency of Partners
- Unlawful Business
- Dissolution on the happening of contingent event
- Expiry of Fixed Period
- On achievement of a specific task
- Death of Partner
- Insolvency of Partner
- Resignation of Partner
- Dissolution by notice
B. Dissolution by Court
The court may order for the dissolution of the firm on the following grounds: –
- Insanity of Partner
- Incapacity of Partner
- Misconduct of Partner
- Constant breach of the agreement by partner
- Transfer of Interest
- Continuous Losses
- Just and Equitable
Dissolution by Mutual Agreement
In the case of Dissolution of Firm by mutual agreement, the following steps would be required to be followed:
1. Prepare a Dissolution Deed in which the consent of all partners is there.
2. An advertisement needs to be given in at least two local newspapers.
3. It will be published in the official gazette.
4. It would also be required to submit documents along with the NIL balance sheet to the registrar of Firms.
Dissolution by Court
In the case of Dissolution of Firm by a court, the following steps would be required to be followed:
- Review your partnership agreement.
- Discuss with other partners.
- File dissolution papers.
- Notify others.
- Settle and close out all accounts.
Lastly, don’t forget that it’s always best to consult with an experienced business lawyer. Because certain rules vary by state, you’ll want to ensure that you’re upholding all your legal obligations and that all steps are properly taken.