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Dissolution
The dissolution of partnership between all the partners is called as dissolution of partnership firm. Dissolution can be due to any of the following reasons:
- Dissolution by will
In case, no duration of business is mentioned in the partnership deed, than the firm may be dissolved by any partner by giving notice in writing to all the partners , of his intention to dissolve the firm.
- Dissolution as per partnership deed
The partnership will dissolve on the happening of any event mentioned in the partnership deed, if it is mentioned that on the happening of that event, the partnership will dissolve. For example, if it is mentioned on successful, completion of particular project, the firm will dissolve.
- Compulsory dissolution
A firm shall compulsorily dissolved
- On the adjudication of all the partners as insolvent
- On 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 on its business.
Provided that, where 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
Mode of settlement of accounts between Partners:
In settling the accounts of a firm after dissolution, the following rules shall, subject to partnership deed , be observed:
- Losses, including deficiencies of capital, shall be paid first out of profits, next out of capital, and, lastly, if necessary, by the partners individually in the proportions in which they were entitled to share profits;
- The assets of the firm, including any sums contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and order:
- in paying the debts of the firm to third parties;
- in paying to each partner rateably what is due to him from the firm for advances as distinguished from capital;
- in paying to each partner rateably what is due to him on account of capital; and
- the residue, if any, shall be divided among the partners in the proportions in which they were entitled to share profits.
Payment of firm debts and of separate debts
Where there are joint debts due from the firm, and also separate debts due from any partner, the property of the firm shall be applied in the first instance in payment of the debts of the firm, and, if there is any surplus, then the share of each partner shall be applied in payment of his separate debts or paid to him. The separate property of any partner shall be applied first in the payment of his separate debts, and the surplus (if any) in the payment of the debts of the firm.
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