Question

What are the grounds on which a partnership firm is dissolved explain

Answer 1

Answer:

A firm may be dissolved under the following circumstances:

(a) Dissolution by Agreement (Section 40):

A partnership firm can be dissolved by an agreement among all the partners. Section 40 of Indian Partnership Act, 1932 allows the dissolution of a partnership firm if all the partners agree to dissolve it. Partnership concern is created by agreement and similarly it can be dissolved by agreement. This type of dissolution is known as voluntary dissolution.

(b) Dissolution by Notice (Section 43):

ADVERTISEMENTS:

If a partnership is at will, it can be dissolved by any partner giving a notice to other partners. The notice for dissolution must be in writing. The dissolution will be effective from the date of the notice, in case no date is mentioned in the notice, and then it will be dissolved from the date of receipt of notice. A notice once given cannot be withdrawn without the consent of all the partners.

(c) Compulsory Dissolution (Section 41):

A firm may be compulsorily dissolved under the following situations:

(i) Insolvency of Partners:

ADVERTISEMENTS:

When all the partners of a firm are declared insolvent or all but one partner are insolvent, then the firm is compulsorily dissolved.

(ii) Illegal Business:

The activities of the firm may become illegal under the changed circumstances. If government enforces prohibition policy, then all the firms dealing in liquor will have to close down their business because it will be an unlawful activity under the new law. Similarly, a firm may be trading with the businessmen of another country. The trading will be lawful under present conditions.

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