{"id":1498,"date":"2019-06-25T12:54:49","date_gmt":"2019-06-25T12:54:49","guid":{"rendered":"https:\/\/commerceiets.com\/?p=1498"},"modified":"2019-06-25T12:54:49","modified_gmt":"2019-06-25T12:54:49","slug":"dissolution-of-partnership-firm","status":"publish","type":"post","link":"https:\/\/commerceiets.com\/dissolution-of-partnership-firm\/","title":{"rendered":"DISSOLUTION OF PARTNERSHIP FIRM"},"content":{"rendered":"\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/commerceiets.com\/dissolution-of-partnership-firm\/#DISSOLUTION_OF_PARTNERSHIP_FIRM\" title=\"DISSOLUTION OF PARTNERSHIP FIRM\">DISSOLUTION OF PARTNERSHIP FIRM<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/commerceiets.com\/dissolution-of-partnership-firm\/#CIRCUMSTANCES_IN_WHICH_THE_FIRM_IS_DISSOLVED\" title=\"CIRCUMSTANCES IN WHICH THE FIRM\nIS DISSOLVED\">CIRCUMSTANCES IN WHICH THE FIRM\nIS DISSOLVED<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/commerceiets.com\/dissolution-of-partnership-firm\/#MODES_OF_DISSOLUTION_OF_FIRM\" title=\"MODES OF DISSOLUTION OF FIRM\">MODES OF DISSOLUTION OF FIRM<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/commerceiets.com\/dissolution-of-partnership-firm\/#DISSOLUTION_BY_AGREEMENT_Under_Section_40_of_Indian_Partnership_Act_1932\" title=\"DISSOLUTION BY AGREEMENT: (Under Section 40 of Indian Partnership Act, 1932)\">DISSOLUTION BY AGREEMENT: (Under Section 40 of Indian Partnership Act, 1932)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/commerceiets.com\/dissolution-of-partnership-firm\/#COMPULSORY_DISSOLUTION_Under_Section_41_of_Indian_Partnership_Act_1932\" title=\"COMPULSORY DISSOLUTION: (Under Section 41 of Indian Partnership Act, 1932)\">COMPULSORY DISSOLUTION: (Under Section 41 of Indian Partnership Act, 1932)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/commerceiets.com\/dissolution-of-partnership-firm\/#DISSOLUTION_ON_HAPPENING_OF_EVENTS_CONTINGENCIES_Under_Section_42_of_Indian_Partnership_Act_1932\" title=\"DISSOLUTION ON HAPPENING OF EVENTS\/ CONTINGENCIES: (Under Section 42 of Indian Partnership Act, 1932)\">DISSOLUTION ON HAPPENING OF EVENTS\/ CONTINGENCIES: (Under Section 42 of Indian Partnership Act, 1932)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/commerceiets.com\/dissolution-of-partnership-firm\/#DISSOLUTION_BY_NOTICE_OF_THE_PARTNERSHIP_AT_WILL_Under_Section_43_of_Indian_Partnership_Act_1932\" title=\"DISSOLUTION BY NOTICE OF THE PARTNERSHIP AT WILL: (Under Section 43 of Indian Partnership Act, 1932)\">DISSOLUTION BY NOTICE OF THE PARTNERSHIP AT WILL: (Under Section 43 of Indian Partnership Act, 1932)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/commerceiets.com\/dissolution-of-partnership-firm\/#DISSOLUTION_BY_ORDER_OF_COURT_Under_Section_44_of_Indian_Partnership_Act_1932\" title=\"DISSOLUTION BY ORDER OF COURT: (Under Section 44 of Indian Partnership Act, 1932)\">DISSOLUTION BY ORDER OF COURT: (Under Section 44 of Indian Partnership Act, 1932)<\/a><\/li><\/ul><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/commerceiets.com\/dissolution-of-partnership-firm\/#SETTLEMENT_OF_ACCOUNTS_AT_DISSOLUTION_OF_PARTNERSHIP_FIRM\" title=\"SETTLEMENT OF ACCOUNTS AT DISSOLUTION\nOF PARTNERSHIP FIRM\">SETTLEMENT OF ACCOUNTS AT DISSOLUTION\nOF PARTNERSHIP FIRM<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/commerceiets.com\/dissolution-of-partnership-firm\/#PROCEDURE_TO_BE_FOLLOWED_IN_SETTLEMENT_OF_ACCOUNTS_UNDER_SECTION_48\" title=\"PROCEDURE TO BE FOLLOWED IN\nSETTLEMENT OF ACCOUNTS UNDER SECTION 48:\">PROCEDURE TO BE FOLLOWED IN\nSETTLEMENT OF ACCOUNTS UNDER SECTION 48:<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"DISSOLUTION_OF_PARTNERSHIP_FIRM\"><\/span>DISSOLUTION OF PARTNERSHIP FIRM<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Dissolution of Partnership Firm means the firm closes down its operations and comes to an end. On the dissolution of the firm, the assets of the firm are sold and liabilities are paid off. The balance, if any, is paid to the partners in settlement of their accounts. If there is shortfall in meeting outside liabilities, it is met by the partners from their private assets.<\/p>\n\n\n\n<p class=\"has-background has-luminous-vivid-amber-background-color\"><strong>ACCORDING TO SECTION 39 OF INDIAN PARTNERSHIP ACT, 1932<\/strong><\/p>\n\n\n\n<p>\u201cDissolution of partnership among\nall the partners of the firm is known as Dissolution of Partnership Firm.\u201d<\/p>\n\n\n\n<p>In other words, it means the\nbreakdown or discontinuance or severance of the relation of partnership between\nall the partners. Thus, when all and every one of the members of a firm stops\nto carry on the business of the firm, the firm is said to be dissolved.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"CIRCUMSTANCES_IN_WHICH_THE_FIRM_IS_DISSOLVED\"><\/span>CIRCUMSTANCES IN WHICH THE FIRM\nIS DISSOLVED<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The partnership is deemed to have\nbeen dissolved in any of the following cases:<\/p>\n\n\n\n<ul><li>If there is change in profit-sharing ratio of\nthe existing partners.<\/li><li>In case of Admission of Partner.<\/li><li>If a partner retires from the firm, where at\nleast two persons remain as partners.<\/li><li>In case of Expulsion of Partner.<\/li><li>If a partner dies, where at least two persons\nremain as partners.<\/li><li>If there is insolvency of any one of the\npartners.<\/li><li>In case of expiry of the period of partnership\nif the partnership is formed for fixed period.<\/li><li>Completion of venture, if the partnership is\nformed for that venture.<\/li><li>Merger of one partnership firm into another.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"MODES_OF_DISSOLUTION_OF_FIRM\"><\/span><strong>MODES OF DISSOLUTION OF FIRM<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<figure class=\"wp-block-image\"><img loading=\"lazy\" decoding=\"async\" width=\"960\" height=\"720\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/06\/Slide3-1.jpg\" alt=\"MODES OF DISSOLUTION OF FIRM\" class=\"wp-image-1501\" srcset=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/06\/Slide3-1.jpg 960w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/06\/Slide3-1-300x225.jpg 300w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/06\/Slide3-1-768x576.jpg 768w\" sizes=\"(max-width: 960px) 100vw, 960px\" \/><\/figure>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"DISSOLUTION_BY_AGREEMENT_Under_Section_40_of_Indian_Partnership_Act_1932\"><\/span><strong>DISSOLUTION BY AGREEMENT: (Under Section 40 of Indian Partnership Act, 1932)<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>A firm may be dissolved when all the partners agree for its dissolution. A <a href=\"https:\/\/commerceiets.com\/partnership-business\/\">partnership<\/a> firm is set up by an agreement; similarly, it can be dissolved by an agreement.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"COMPULSORY_DISSOLUTION_Under_Section_41_of_Indian_Partnership_Act_1932\"><\/span><strong>COMPULSORY DISSOLUTION: (Under Section 41 of Indian Partnership Act, 1932)<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>A firm is compulsory dissolved in\nthe following cases:<\/p>\n\n\n\n<ul><li>When all the partners, except one become insolvent.<\/li><li>If all the partners become insolvent.<\/li><li>When the business becomes illegal.<\/li><li>When the number of partners exceed 20 in case of an ordinary business or 10 in case of Banking business.<\/li><\/ul>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"DISSOLUTION_ON_HAPPENING_OF_EVENTS_CONTINGENCIES_Under_Section_42_of_Indian_Partnership_Act_1932\"><\/span><strong>DISSOLUTION ON HAPPENING OF EVENTS\/ CONTINGENCIES: (Under Section 42 of Indian Partnership Act, 1932)<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>A firm may be dissolved on the\nhappening of any one of the following incidents:<\/p>\n\n\n\n<ul><li>By the expiry of the term or the duration of the\npartnership firm.<\/li><li>On completion of the venture for which it was\nconstituted.<\/li><li>By death of the partner.<\/li><li>On adjudication of partner as insolvent.<\/li><\/ul>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"DISSOLUTION_BY_NOTICE_OF_THE_PARTNERSHIP_AT_WILL_Under_Section_43_of_Indian_Partnership_Act_1932\"><\/span><strong>DISSOLUTION BY NOTICE OF THE PARTNERSHIP AT WILL: (Under Section 43 of Indian Partnership Act, 1932)<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>In case the partnership is at\nwill, the firm may be dissolved by any partner giving notice in writing to all\nthe other partners of his intention to dissolve the firm.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"DISSOLUTION_BY_ORDER_OF_COURT_Under_Section_44_of_Indian_Partnership_Act_1932\"><\/span><strong>DISSOLUTION BY ORDER OF COURT: (Under Section 44 of Indian Partnership Act, 1932)<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>The court may on an application\nby a partner, order the dissolution of the partnership firm under the following\ncircumstances:<\/p>\n\n\n\n<ul><li>When a partner has become of unsound mind.<\/li><li>If a partner, other than partner filing the\nsuit, has become permanently incapable of performing his duties as a partner.<\/li><li>If a partner, other than partner filing the\nsuit, is guilty of misconduct that may harm the partnership.<\/li><li>When a partner, other than partner filing the\nsuit, willfully or persistently commits breach of partnership agreement.<\/li><li>If a partner, other than partner filing the\nsuit, has transferred the whole of his interests in the firm to a third party.<\/li><li>When the court is satisfied that the firm cannot\nbe carried on except at a loss.<\/li><li>When the court is satisfied that the dissolution\nis just and equitable due to some other reasons.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"SETTLEMENT_OF_ACCOUNTS_AT_DISSOLUTION_OF_PARTNERSHIP_FIRM\"><\/span>SETTLEMENT OF ACCOUNTS AT DISSOLUTION\nOF PARTNERSHIP FIRM<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Section 48 of Indian Partnership\nAct, 1932 states the manner of settlement of accounts at the time of\ndissolution of partnership firm.<\/p>\n\n\n\n<p>In setting the accounts of a\nfirm, after dissolution, the following rules sell, subject to an agreement\nbetween the partners, are observed:<\/p>\n\n\n\n<p class=\"has-background has-luminous-vivid-amber-background-color\"><strong>Treatment of Losses (Section 48 a)<\/strong><\/p>\n\n\n\n<p>Losses should be treated in the\nfollowing order Loss should be paid:<\/p>\n\n\n\n<ul><li>Out of profits of the business, then<\/li><li>Out of capital, then and finally<\/li><li>By partners in their profit sharing ratio.<\/li><\/ul>\n\n\n\n<p class=\"has-background has-luminous-vivid-amber-background-color\"><strong>Treatment of Assets (Section 48 b)<\/strong><\/p>\n\n\n\n<p>The assets of the firm shall be\napplied in the following manner:<\/p>\n\n\n\n<ul><li>Payment of firm\u2019s debts to third parties.<\/li><li>Amount of partner\u2019s advances (loans) paid.<\/li><li>Payment to each partner\u2019s capital.<\/li><li>Any amount left out after these, is to be divided among partners in their sharing ratio.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"PROCEDURE_TO_BE_FOLLOWED_IN_SETTLEMENT_OF_ACCOUNTS_UNDER_SECTION_48\"><\/span>PROCEDURE TO BE FOLLOWED IN\nSETTLEMENT OF ACCOUNTS UNDER SECTION 48:<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Following procedure is followed in settlement of accounts, when a firm is dissolved:<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img loading=\"lazy\" decoding=\"async\" width=\"960\" height=\"720\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/06\/Slide4-2.jpg\" alt=\"PROCEDURE TO BE FOLLOWED IN SETTLEMENT OF ACCOUNTS UNDER SECTION 48:\" class=\"wp-image-1503\" srcset=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/06\/Slide4-2.jpg 960w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/06\/Slide4-2-300x225.jpg 300w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/06\/Slide4-2-768x576.jpg 768w\" sizes=\"(max-width: 960px) 100vw, 960px\" \/><\/figure>\n\n\n\n<p><strong>Realisation of Assets: <\/strong>All tangible and intangible assets are realized, some assets are sold cash and some may be taken over by the partners at agreed values.<\/p>\n\n\n\n<p><strong>Payment of Realisation Expenses:<\/strong> Expenses incurred on disposal of assets are to be met out of firm\u2019s cash. Sometimes such expenses are borne by a partner, when he undertakes to do the work of dissolution for some commission.<\/p>\n\n\n\n<p><strong>Payment of Liabilities to Third Parties: <\/strong>After the realisation of assets and payment of realisation expenses, liabilities to third parties are to be paid off out of remaining cash. Third party liabilities include all outside liabilities, such as sundry creditors, bills payable, outstanding liabilities, loans from third parties or banks, except partner\u2019s loans.<\/p>\n\n\n\n<p><strong>Payment of Partner\u2019s Loans:<\/strong> After the payment of liabilities to third parties, payment of partner\u2019s loan will be made.<\/p>\n\n\n\n<p><strong>Distribution of Balance Cash or other assets among partners:<\/strong> Balance Cash or assets will be distributed among the partners in their final capital ratio. If any <a href=\"https:\/\/commerceiets.com\/partners-capital-accounts\/\">partner\u2019s capital account <\/a>shows a debit balance, the partner has to refund the balance to the firm, so that the partners having credit balance may be paid in full. <\/p>\n","protected":false},"excerpt":{"rendered":"<p>DISSOLUTION OF PARTNERSHIP FIRM Dissolution of Partnership Firm means the firm closes down its operations and comes to an end. On the dissolution of the firm, the assets of the firm are sold and liabilities are paid off. The balance, if any, is paid to the partners in settlement of their accounts. If there is&#8230;<\/p>\n<p class=\"more-link-wrap\"><a href=\"https:\/\/commerceiets.com\/dissolution-of-partnership-firm\/\" class=\"more-link\">Read More<span class=\"screen-reader-text\"> &ldquo;DISSOLUTION OF PARTNERSHIP FIRM&rdquo;<\/span> &raquo;<\/a><\/p>\n","protected":false},"author":2,"featured_media":1506,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[19,21],"tags":[50,51,52],"_links":{"self":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/1498"}],"collection":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/comments?post=1498"}],"version-history":[{"count":0,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/1498\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media\/1506"}],"wp:attachment":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media?parent=1498"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/categories?post=1498"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/tags?post=1498"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}