1. Dissolution of Partnership Firm under Indian Partnership Act
According to the Section 39 of Indian Partnership Act 1932, the dissolution of a partnership between all the partners of a firm is called the "dissolution of the firm". Dissolution is a process by which a partnership firm comes to an end and all its partners get free from the rights and liabilities that arose from the partnership. However, the dissolution of a partnership firm is quite different from the dissolution of partnership.
2. Difference between Dissolution of Partnership and Dissolution of Firm
Dissolution of Partnership vs Dissolution of Firm
| S.No. |
Dissolution of Partnership |
Dissolution of Firm |
| 1. |
Dissolution of Partnership refers to the end of association between a partner and the rest of the other partners. |
Dissolution of Firm refers to a process by which the association between all the partners end. |
| 2. |
It results in the leaving of the partner who dissolved his partnership. |
It results in the closure of the firm. |
| 3. |
Dissolution of Partnership is voluntary in nature as it is dissolved by mutual consent. |
Dissolution of Firm is either voluntary or compulsory in nature. |
| 4. |
The rights and liabilities of only the outgoing partner dissolves. |
The rights and liabilities of all the partners in the firm dissolves. |
| 5. |
The book of accounts of the firm continues to remain open as the business continues. |
The book of accounts of the firm along with the partner’s account is closed as the firm dissolves. |
| 6. |
The business of the firm continues as usual. |
The business of the firm closes down permanently as the firm ceases to exist. |
3. Different methods for Dissolution of the Firm:
Section 39 of the Indian Partnership Act, 1932 provides the firm with various methods of dissolution. A firm that is set to dissolve itself can opt for any of these methods as per the situation and requirement.
3.1 Dissolution by Agreement
A firm can be simply dissolved if all partners of the firm give consent to the dissolution. The partners can also choose to dissolve the firm as per the method that was specified in the Partnership Deed, if any.This is the easiest method of dissolution provided by the Act under Section 40. In situations, where there is no disagreement between the partners, this method can be opted to avoid unnecessary litigation.
3.2 Dissolution by Notice
Section 43 of the Partnership Act provides that when the partnership has been formed at will, the outgoing partner can communicate his intention to dissolve the firm by notice. A Partnership at Will is a type of partnership where no specific time period has been fixed in the Partnership Deed and thus can be dissolved as per the wishes of partners. All partnerships are considered to be at Will until it is shown that a time period was fixed.
The firm will be dissolved from the date mentioned in the notice as date of dissolution or if no date is mentioned then date of communication of notice will be considered.
3.3 Compulsory Dissolution
Section 41 of the Partnership Act provides that a firm has has to be compulsorily dissolved in the following cases:
- If all partners of a firm, or all the partners except one partner, are adjudicated as insolvent.
- If any such event takes place which makes it unlawful for the business of the firm to be carried on or for the partners to carry it on. For example, if the firm specifically deals in production and supply of a product that the Government has decided to ban, in such case, the firm stands dissolved.
3.4 Dissolution due to the Contingencies
As per Section 42 of the Partnership Act, unless the partnership contract provides for otherwise, a firm dissolves when any of the following contingencies take place:
- If the partnership was formed for a fixed period, that is, the partnership was not at will, the partnership dissolves as the period is reached unless the period is renewed or extended.
- If the partnership was formed to carry out a particular adventure in business, it would dissolve when the operation stands completed or the objective is achieved.
- If a partner dies, partnership will get dissolved unless partners agree to the contrary. It means if partners decide that the partnership firm will continue even after the death of the partner then they will enter into a new agreement.
- If a partner is adjudicated as insolvent by any Court or Tribunal.
3.5 Dissolution by the Court
Section 44 of the Partnership Act provides that the dissolution of a firm may also be ordered by the Court if any of the following grounds are fulfilled:
- If a partner of the firm becomes of unsound mindi.e. incapable of intelligently taking decisions. The suit for dissolution in this case must be brought by the next friend of such partner or any partner of the firm.
- If a partner becomes completely incapable of performing his duties as a partner, other partners may bring the suit for dissolution.
- If a partner is guilty of any misconduct which could affect prejudicially the working of the firm or carrying on the business.
- If a partner willfully and continuously breaches the agreement mentioned in the partnership deed or contract, or if a partner conducts in a way that is not reasonably practicable with the business.
- If a partner has transferred the interests he carried to a third party, against the consent of other partners.
- If the business of a firm cannot be carried on further without incurring losses.
- Or on any grounds that the court thinks of as fit.
4. The Liabilities of Partners after Dissolution
El artículo 45 de la Ley establece las responsabilidades por los actos de los socios tras la disolución de la firma. Los socios siempre son responsables ante terceros por cualquier acto realizado por cualquiera de ellos, a menos que notifiquen públicamente la disolución de la firma. Esto significa que, si no se ha hecho pública la notificación de disolución, todos los actos realizados por los socios se considerarán realizados por la firma y, por tanto, su responsabilidad solidaria continúa.
Sin embargo, la responsabilidad no se aplicará a los actos del socio que haya fallecido, que haya sido declarado insolvente o que no haya tratado con el tercero en su calidad de socio de la firma.
5. Autoridad continua para el proceso de liquidación
De acuerdo con el artículo 47 de la Ley, una vez declarada la disolución de una firma, la autoridad de cada socio para vincular a la firma, así como los demás derechos y obligaciones mutuos de los socios, continuarán en la medida necesaria para liquidar los asuntos de la firma y completar las transacciones iniciadas pero no finalizadas en el momento de la disolución.
6. Liquidación de las cuentas de la firma
Dado que la firma está a punto de disolverse, debe liquidar sus cuentas antes de la disolución. El artículo 48 de la Ley establece el procedimiento para la liquidación de cuentas de la siguiente manera:
- Las pérdidas incurridas por la firma debido a la insuficiencia de capital deben pagarse primero con los beneficios de todos los socios; si esto resulta insuficiente, se cubrirán con el capital y, si aun así las pérdidas no se cubren por completo, se liquidarán mediante la aportación personal de los socios.
- Los activos de la firma, incluida cualquier suma aportada por los socios, se aplicarán de la siguiente manera:
- Primero, para pagar las deudas de la firma con terceros.
- Para pagar a cada socio de forma proporcional lo que se le deba por concepto de anticipos, es decir, préstamos tomados por la firma del socio distintos al capital.
- Para pagar a cada socio de forma proporcional lo que se le deba en relación con el capital.
- El excedente restante se repartirá entre los socios según su proporción habitual de participación.
