Maharashtra Board Class 12 Book Keeping and Accountancy Chapter 6 Dissolution Of Partnership Firm PDF Download

Dissolution Of Partnership Firm

Introduction, Meaning And Definition Of Dissolution Of Partnership Firm

Dissolution means to windup or to close down. When business relations among the partners in a Partnership Firm comes to an end, it is known as Dissolution of Partnership.

When one or more partner/partners take decision to close the Partnership Firm, it is known as Dissolution of Partnership firm.

When all partners decide to discontinue from partnership firm, it results in to dissolution of partnership.

The relationship between partners is referred to as Partnership. While all the partners collectively are called firm.

Dissolution of a firm is different from dissolution of partnership.

In short, dissolution of partnership may not include dissolution of the firm, but dissolution of the firm means dissolution of the Partnership.

Meaning And Definition

Meaning - In Legal terms dissolution has multiple meaning. A word "DISSOLUTION" comes from the Latin word "DISSOLUTION", means "A dissolving of something". Dissolution is the last stage of closure of business.

Definition

1. Indian Partnership Act 1932, Sec. 39, provides that, "The dissolution of the partnership between all the partners of a firm is called the dissolution of a firm." It implies the complete breakdown of the relation of Partnership between all the partners.

2. "The act or process of ending an official organization or legal agreement."

3. "The dissolution of partnership firm indicates the discontinuance function as a firm".

Teacher's Note

When partners decide to close their business, it is called dissolution. For example, if two friends open a shop together and later they decide to close it, that is dissolution.

Exam Trick

Remember: Dissolution = closing down business. Just like a school closes at the end of the year, a partnership firm also closes when dissolution happens.

Points to Remember

Dissolution means ending the partnership business.
It is the last stage of closing a business.
All partners must agree to dissolve the firm.
Dissolution is different from death or retirement of one partner.
The firm must settle all its liabilities before closing.

Circumstances / Reasons For Dissolution Of Partnership Firm

1. By Voluntary act of partners themselves.

2. When the period (Duration) of partnership firm is expired.

3. Partnership can be dissolved after the completion of specific Venture for which it was formed.

4. Insolvency of all partners or all partners except one results in to dissolution.

5. Illegal or unlawful business activity results into dissolution.

6. Partnership at will can be dissolved by giving notice of 14 days.

In addition to the above circumstances. Honorable Court can order to dissolve the partnership on legal grounds. For example - Guilt of misconduct : Partner becomes of unsound mind, breach of agreement etc.

Teacher's Note

A partnership can end for many reasons. For example, if two business partners want to work separately, or if the business time period is finished, the partnership dissolves.

Exam Trick

Remember: Main reasons for dissolution are - time period ends, partners want to stop, business becomes illegal, or all partners go bankrupt.

Points to Remember

Partners can choose to dissolve the firm anytime.
When the agreed time period ends, the firm dissolves.
If the business becomes illegal, it must dissolve.
Court can also order dissolution of the firm.
At least two partners must remain, or the firm dissolves automatically.

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