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6 ‘
pISSOLUTION OF FIRM
NieaninS —_:ccolution means discontinual . The dissolution may be of a
Fit rtner dies, retires or becomes insolvent but
The terre a firm. When one Pal
i of a firm. 1 " .
artes ener continue the business, it Is called dissolution of partnership
bee Tiners comes to an end and the business is
ni
relationship between all the pal
ees, it is called dissolution of firm.
unds of Dissolution : '
Crore grounds or modes of dissolutiot
solution by Agreement
‘A firm may be dissolved with consent ofall the partners or in accordance
with a contract between the partners. [Sec. 40} :
2, Compulsory Dissol
‘A compulsory diss
When all the partners are
b. When all except ‘one of th
When business of the firm becomes
contingent Bissolut ad a
Subject to contract between the partners, a firm may or. may not dissolve
under the following ‘circumstances; [Sec. 42)
a. On expiry of fixed period for which the firm was formed.
b. Oncompletion of the project for which the firm was formed.
c. Ondeath of a partner.
d. On insolvency of any partner.
4. Dissolution by-Notice :
a When the partnership is at will, the firm may be dissolved by any partner
re f wa ee writing to all the other partners of his intention to dissolve the
See issolved from the date mentioned in the notice. \f no date is
ned, it dissolves from the date of communication of the notice. {Sec. 43]
5. Dissolution by Court
The court decides ab i ‘i
7 ecides about dissolution of the firm
aes regarding dissolution. For example, when a partner bet
partners are willing to continue while others insist on diss‘
\n of firms are as follows:
4, Dis
ution <
‘olution takes place under
declared insolvent.
e’partners are declared insolvent.
5 unlawful. [Sec. 41]
1 following citcumstances:
if there is dispute among
comes insane
‘olution of the
45
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fe any of the following grounds on a suitfiled |
firm. The court may dissolve a fim on
by any of the partners: [Sec, 44]
a." Insanity issolution of th
When a partner becomes insane, the court may alow. a the firm. "®
firm. However, temporary sickness is no grounds for diss
b. Permanent Incapacity . forming his duties
When a partner becomes permanently incapable of pe 9
#5 3 partner, the Court may order dissolution of the firm.
icrre ly affect
: “When partner is guilty of misconduct which is likely to adversely the
Feputation of the firm, the Court may dissolve the firm.
d. Bi ich of Agreement i jer
iiss a partner commits breach of agreement relating to management of
le, @ partne,
the affairs of the ficm, the Court may dissolve the firm. For example, pi r
Uses firm's money 10 ay personal debl.
ones of titarest of his interest in the firm to a third party
When a partner transfers whole
without consent of other Partners, the-Court may dissolve the firm.
f. Continuous Losses
When business of a firm cannot be carried on except at a loss, the Court
may order for dissolution of the firm.
g- Just and Equitable fee .
When on any other ground, the. Court considers it just and equitable that
the firm should be dissolved, the Court may dissolve the firm. For example,
Partners are not on Speaking terms with each other. [Sec. 44)
Consequences of Dissolution
The following are consequences of dissolution:
1. Partners on Dissolution :
The partners of the dissolved firm Continue to be liable to third parties for.
SRG one in connection with the afta co the firm until public notice is given of
dissolution. But estate of a partner wh dies or becomes insolvent or a sleeping
2. Application of Property
On a he ee Partner or his representative is entitled to
and proceeds a; li i
fir fo distribute the oc Pplied to Tepay outside debts
ra plus amon, th i
Nights. [Sec] 4g 9 the partners or their
OE oP ney Th
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pissolution of Firm rine tinues tO
ner contin
Ds Continuing Authority unary of 02 PAT at the Lime
a Ate gm erm Spiete unsinishe? bi
wind up the
Sraissolution. (Sec. 47] ' firm, he has
i ™,
4, Personal Profit the goodwill of the Tm:
7 a partner buys =
if on dissolution of the firs on personal profits. [Sec- 50] :
rtnership for 2
sht to use the firm's nam
nd of Premium . a
"when a partner has paid premium on entering me aa ei arg otherwise
xed period, and the firm is disso expiration Of PS enim for
fixe by death of any partner, 6 pe entlled 10 refund Ot ficed due to
ire pired period. But he-cannot he shall Pemium if dissolution ST be made.
Hig misconduct or under an Mreement that no rerund of pr
the rig!
5. Der
on ‘fraud oF
[Sec 51]
6. Fraud and Misrepresentation : oe
tract creating the partnershiF is
I aration, 2 A ct ie contract. A partner has the following
entation, a partner can reje
m, remaining. after.
misreprest
in the firm
rights: [Sec. 52]
He has a right of lien on surplus
payment of debts, for any sum paid
Snd capital contributed by:him. .
da creditor of the firtn ini feSPe
of the firm.
10 be indemnified by the partners guilty of fraud oF
bts of the firm.
the- fir
s or assets of i
nase of share it
a
by him for purcl
b. He is consideret ct of any payment made by him
to pay the debts
He is entitled t
misrepresentation against all det
Firm’s Name or Property
Every partner. or his representative is entitled to restrain other partners
from carrying on similar business in the name of the firre-or from using property
of the firm for their own benefit, until affairs of the firm have been completely
would up. [Sec. 53]
Settlement of Accounts on Dissolution
The following are modes of settlement of accounts on dissolution:
1
4. Sharing of Deficiency
If dssets of a firm are insufficient to iabili
mn i pay the debts and liabilities of tl
oan ihe losses or firm including deficiency of capital shal! be paid first Oat
, then out of capital and lastly by the partners individually in their profit
sharing ratio. (Sec. 48(a)]
2. Application of Assets
Thi i i
e assets of a firm including any sums contributed by the partners to
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48 : 2
make up deficiency of capital shall be ‘applied in following manner: [Sec. 48(b)]
a. In paying debts.of the firm to third parties. : . Ee
b. In paying to each partner ratably on account of advances given by him to the
firm. :
c. liv paying to each partner ratably what is due to him on account of bel :
d. The surplus,.if any, shall be divided among the partners in their profit sharing
ratio. :
3. Payment of Debts ‘ : : :
When a firm is dissolved, the payment of debts shall be as under:
a. Firm's property shall be used to. pay debts of the firm. If there is surplus,
share of partner shall be used to pay his private debts or topayhim. _
“b. Private property of partner shall be used to pay private debts. If there ‘is
surplus, it shall be used to pay the debts of the firm. [Sec. 49]
4, Sale of Goodwill
in settling accounts of the firm after dissolution, the goodwill shall be
included in the assets and may, be sold either separately or along with other
property of the firm. [Sec. 55(1)]
p QUESTIONS
4. Explain the grounds on which a firm may be dissolved.
2. Explain the consequences of dissolution of firm. ;
3. Explain the rules of settlement of accounts of firm.
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