Dissolution of Partnership Firm

Dissolution of Partnership Firm2019-02-19T09:11:28+00:00

Mode of Dissolution of Partnership Firm:

Due to Misconduct

The other reason for dissolution by the court is misconduct.
Partner who misses out on any particular clause, and even after giving warnings, are not heeding to it. In that case, The partnership firm may be dissolved through court interference in such instances

Dissolution by Notice

If the partnership business is at will, any one partner (or more) can, through a simple and advanced notice, dissolve a partnership. The notice should specify the date on which the dissolution comes into force. Such a dissolution can be initiated by any individual partner, after proper notice is issued.

Due to Mental Instability

When a partner becomes mentally unstable/incapacitated
The partner, other than the one incapacitated/mentally unstable, needs to file the request for dissolution of partnership through the court.

Transfer of Equity

A partner may decide to discontinue the partnership through the court of law if another individual in the partnership has transferred their share of interest or equity of the firm to a third party without consulting the partners of the firm.

Dissolution by Court

A partnership business involves working with various individuals at a time. Even if they are friends and relatives, there are instances where one or more partner may find it not suitable for him or her under circumstances to continue. In these cases, the court may also dissolve the firm
Some Cases:

Compulsory Dissolution

 firm may need to be dissolved compulsorily if:
• All partners or all partners except one partner are declared insolvent
• The firm is carrying unlawful activities like dealing in drugs or other illegal products or doing business with alien countries or other countries that may harm the interest of India or doing other such activities.

Responsibility after Dissolution

Although the liabilities of the partners of the partnership firm ceases to exist once the firm is declared as dissolved, the partners are liable for any occurrences before the dissolution of the partnership firm. Only the partners who are considered to be disabled/ adjudicated as insolvent/ dead are supposed to be exempt from this liability after the dissolution of the partnership firm.

Dissolution by Mutual Consent

The best and the easiest way to dissolve a partnership firm is by mutual consent. When the contract that specifies the partnership comes to an end or the partners mutually agree, due to various business or personal reasons to end the partnership, they can produce an agreement for dissolving it.
It is essential for all the partners to agree mutually for dissolving partnerships through the Dissolution by Mutual Consent clause in the partnership agreement.

Dissolution Due to Contingencies

Upon happening of certain events, a firm may be required to get dissolved:

  1. On account of the end of a project/endeavor which the firm was formed to undertake.
  2. By the death of a partner.
  3. By the adjudication of a partner as an insolvent or one or more partners.
  4. By the expiry of a partnership period. Some firms are started with a clear view of the tenure for which the partnership will exist. Such partnerships will, naturally, come to an end once the period of partnership is complete.

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