EUROPA SCIENCE & COMMERCE ACADEMY

Q. No. 8: ANSWER: What are the various mode so dissolution of a firm?

DISSOLUTION OF FIRMS
INTRODUCTION: The dissolution of partnership and dissolution of Firm are different from each other. The partnership business is closed hen the Dissolution of firm takes place. DISSOLUTION OF PARTNERSHIP: Definition: Where one partner dies, retires or becomes insolvent but the remaining partner continue the business, it s called dissolution of partnership but the firm is not dissolved. Dissolution of the partnership may or may not involve the dissolution of the firm. DISSOLUTION OF PARTNERSHIP FIRM: Definition: Dissolution of the firm takes place when the relationship between all the partners come to an end and the business is closed. According to Section 39 of Partnership Act 1932: The Dissolution of partnership between all the partners of a firm is called the dissolution of the firm Explanation: It follows the dissolution of the firm necessarily involves the dissolution of partnership as well as the firm cannot be reconstituted. GROUNDS/MODES OF DISSOLUTION OF A FIRM A firm may be dissolved on any one of the following grounds: 1: DISSOLUTION BY AGREEMENT [SECTION 40]: According to section 40 of Partnership Act 1932, a firm may be dissolved with the consent of all the partners or in accordance with a contract between the partners. 2: COMPULSORY DISSOLUTION [SECTION 41]: A compulsory dissolution takes place in any of the following circumstances: i. Insolvency of Partners [Section 41(1)]: When all partners are declared insolvent. When all except one of the partners are declared insolvent. ii. Illegal Business [Section 41 (b)]: When the business carried on by the firm becomes unlawful. For example: Trading with enemy country. 3: CONTINGENT DISSOLUTION [SECTION 42]: Subject to contract between the partners a firm is dissolved on the happening of the following events. Section 42(a) Expiry of term: If the firm is constituted for a fixed period of time, b the expiry of that term. Section 42(b) Completion of Ventures: On the completion of the project for which the firm was formed. Section 42(c) Death of Partners: Where any partner of partners die, the firm may be dissolved.

Prepared By: H. ABDUL REHMAN

0321-6485593

EUROPA SCIENCE & COMMERCE ACADEMY

Section 42(d) Insolvency of Partner: Where any partner is declared insolvent by the court, the firm may be dissolved. The partnership agreement may provide that the firm will not be dissolved in any of the above mentioned circumstances. Such a provision is valid. 4: DISSOLUTION BY NOTICE [SECTION 43]: These are as follows: Section 43(1): Where the partnership is at will, the firm may be dissolved by any partner giving notice in writing to all other partners of his intention to dissolve the firm. Section 43(2): The firm is dissolved as from the date mentioned in the notice as the dale of dissolution, or if no date is so mentioned, as from the date of the communication of the notice. 5: DISSOLUTION BY COURT [SECTION 44]: Section 44 (a): Insanity: When a person has become of unsound mind. Section 44 (b): Permanent Incapacity: When a partner, other than the partner suing, has become permanently in capable of perform his duties as a partner, such as becoming mad, Section 44 (c): Guilty of Misconduct: When a partner, other than the partner suing, is guilty of misconduct which is likely to effect the nature and reputation of the firm. For example a partner is sent to jail for moral misconduct. Section 44 (d): Breach of Agreement: When a partner, other than the Partner suing, commits breach of agreement relating go the management of the affairs of the firm. Taking away the books of accounts, suing firms monies for his private debts are good grounds for the dissolution. Section 44 (e): Transfer of internets: When a partner, other than the partner suing, lies transferred the whole of is interest in the firm to a third party or allowed his share to be sold in execution of a decree without the consent of the other partners. Section 44 (f): Continuous Loss: When the business of a firm cannot be carried on except at a loss. The court may order for dissolution of the firm. Section 44 (g): Just and Equitable: When on any grounds the court considers it just and equitable that the firm should be dissolved for example if partners are not on speaking terms with each other. CONCLUSION: The partnership firm may be dissolved under any of the above discussed circumstances and according to the conditions prevailing.

Prepared By: H. ABDUL REHMAN

0321-6485593