Dissolution of Firm:-
It must be noted at there are difference between dissolution of firm and dissolution of partnership. Partnership Act describes, " The dissolution of partnership between all the partners of a firm is called the dissolution of the firm." It means that dissolution of the firm includes the dissolution of partnership. But when partnership is dissolved, the firm may or may not be dissolved because the business may be conducted by the surviving partner on the retirement, death or insolvency of partners. So it is dissolution of the partnership but not dissolution of firm. It becomes clear that a that a partnership may be dissolved without dissolving the firm. When firm is dissolved all the activities must come to an end and the assets of the firm disposed of and distributed among the creditors and the balances, if any, distributed among the members of the firm.
Ways of Dissolution
The following are the five manners is which firm may be dissolved.
1. Compulsory Dissolution.
2. Dissolution by Notice.
3. Dissolution by Agreement.
4. Contingent Dissolution.
5. Dissolution by Court.
1. Compulsory Dissolution:
A. By the insolvency of partner:-
A firm shall be dissolved when all the partners or all but one becomes insolvent.
B. By Business becoming illegal:-
A firm shall be dissolved when the business of the firm is declared illegal or becomes unlawful due to happening of any event.
2. Dissolution by Notice:
In Case of partnership at will:-
The firm may be dissolved by any partner serving notice in writing of 14 days to all the existing partners of his intention to dissolve the firm.
3. dissolution by Agreement:
With the consent of all partners:-
A firm may be dissolved by the mutual consent of all partners at any time or in accordance with a contract between the partners.
4. Contingent Dissolution:
The partnership firm may be dissolved due the following reasons:-
A.Completion of Venture:-
By the completion of particular undertaking or venture for which the partnership was formed.
B. Expiry of Period:-
If partnership formed for a fixed period, the firm may be dissolved by the expiry of that time in the absence of new contract.
C. Insolvency of the partner:-
By the adjudication of a partner as an insolvent.
D. Death of partner:-
The firm may be dissolved by the death of partner whether the partnership is as will or for a fixed period.
E. Insolvency of partnership:-
If partnership is itself declared at any time as insolvent.
F. Retirement of partner:-
The partnership may come to an end on the retirement of any partner if remaining partners do not join in the new contract.
5. Dissolution by Court:
The following are the grounds in which a firm may be dissolved by the order of court:-
A. A transfer of interest:-
If any partner transfer his share or interest to other person with out the consent of existing partners.
B. Breach of contract:-
If any partner commits breach of the partnership contract and remaining partners find it impossible to continue the business.
C. Unsound mind:-
If any partner becomes of unsound mind.
D. In-capacity of partner:-
The firm may be dissolved when a partner shows his incapacity to performs his duties due to any physical or mental disease.
E. Misconduct of partner:-
If a partner is found guilty of misconduct in the carrying on the business.
F. Assurance of loss:-
The Court may issue the order of dissolution if the business of the firm cannot be carried on except at a loss.
G. Other grounds:-
The court may dissolve the firm on any other grounds which is just and equitable.