In this article we are going to talk about dissolution or closure of partnership firm. In order for a partnership firm to end its existence in business, it must dissolve itself. This separation process from the company is known as the dissolution of a partnership firm and involves the sale or disposal of all the company’s assets and the final settlement of all its obligations and accounts. Any amount remaining in the business shall be transferred equally to the partners or in the profit- sharing ratio referred to in the partnership agreement.
The dissolution of a partnership company is therefore the decision taken jointly by all partners to wrap up the company and to cancel the agreement between them.
Ways in which the partnership firm can be dissolved.
Various ways by which partnership firm can dissolve are given below:
DISSOLUTION BY MUTUAL CONSENT
Mutual consent is the best and easiest way to dissolve a partnership firm. This means that all partners agree to dissolve partnerships through the dissolution by mutual consent clause in the partnership agreement. In addition, it means that the partners have decided by consulting all the partners and have all agreed to take this step and have no objection.
DISSOLUTION BY NOTICE
If the partnership business is a personal choice, one partner or more partners can dissolve a partnership company through a straightforward and progressive notice. The notice should specify the date the dissolution is imposed. Any individual partner may establish such dissolution after the appropriate notice is issued.
DISSOLUTION DUE TO CONTINGENCIES
Dissolution Because of contingencies means certain conditions exist under which the partnership company can be dissolved, which are:
- Due to the end of a project or business venture for which a partnership firm was formed to realize its full potential
- If a partner dies in a partnership firm.
- If one or more partners cannot make progress with the partnership, as they became insolvent.
- Some partnership firms are formed for a certain period of time and when that period expires, the partner company undergoes a dissolution process.
Some development in the partnership firm may make the dissolution of a company obligatory. For example, if any event is deemed illegal and in some way, it is disturbing for the partnership firm to carry out its business.
DISSOLUTION BY COURT
In the following cases, a partner or all partners may take assistance of court for the Dissolution of Partnership firm:
- Due to breach of agreement: When a partner knowingly and deliberately carries out any act that violates any condition, the partnership agreement could lead to the disbandment of a partnership company.
- Due to mental instability: If a partner becomes mentally unstable or disturbed and cannot act normally and sensibly, this situation can also lead to the dissolution of a partnership company.
- Due to misconduct: Misconduct or malpractice by any partner in the company may be the reason for the dissolution of the partnership company. Any partner or all partners in the business who act inappropriately with others or who do not comply with the signed partnership agreement will lead to the dissolution of the partnership by bringing misconduct against them to court.
- Transfer of equity/interest: A partner may decide to dissolve the partnership through the court if the other partner has transferred his or her interest or equity to a third party without first asking or consulting them.
In the Indian Partnership Act, 1932 provisions are provided for the dissolution of a partnership company within the court or outside the court. The basis on which the company is dissolved is clearly laid down in the Partnership Act. For more information, you can access the Indian Partnership Act. Although the liabilities of the partners cease to exist once the company has been dissolved, the partners are responsible for any act or occurrence before the company has been dissolved. Only disabled, insolvent and dead partners are exempted from liability.
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