Dissolution of Partnership
Dissolution of Partnership
Definition:
Dissolution of Partnership means the termination of the partnership relationship between the partners. It ends the partnership firm as a business entity, although individual partners may continue business on their own.
Types of Dissolution:
| Type | Explanation |
|---|---|
| Dissolution of Partnership | Ends the relationship between partners, but the firm may continue if agreed. |
| Dissolution of Firm | Complete termination of the firm’s business. The firm ceases to exist. |
Modes of Dissolution:
Dissolution by Agreement:
Partners mutually agree to dissolve the firm.
Dissolution by Expiry:
Partnership is dissolved when the fixed term or specific venture is completed.
Dissolution by Notice:
In case of partnership at will, any partner may dissolve the firm by giving notice to others.
Dissolution by Operation of Law:
On death, insolvency, or insanity of a partner.
Dissolution by Court Order:
Court can order dissolution on grounds like:
Partner’s incapacity,
Misconduct,
Breach of agreement,
Insolvency,
Just and equitable grounds.
Effects of Dissolution:
Partnership comes to an end.
Partners must settle accounts, pay debts, and distribute remaining assets.
Authority of partners to bind the firm ends except for completing unfinished business.
Relevant Law:
Governed by Indian Partnership Act, 1932 — Sections 39 to 55 deal with dissolution.
Example:
A partnership formed for 5 years will dissolve on completion of 5 years (expiry).
A partner may give 1 month’s notice to dissolve a partnership at will.
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