Dissolution of Partnership Firm

Dissolution of Partnership Firm

Dissolution of Partnership Firm

One of the disadvantages of a partnership firm, when compared to a Limited Liability Partnership (LLP), relates to business continuity. An LLP is considered a separate legal entity and will continue to exist even in case of death or incapacitation of one of the LLP Partners. On the other hand, a death or incapacitation or various other reasons as mentioned below. In this article, we look at some of the major reasons for the dissolution of a Partnership firm.

Causes of Dissolution of Partnership Firms

A partnership firm can be dissolved or closed for various reasons. The dissolution of parntership firm can happen voluntarily or involuntararily due to any of the following reasons:

Dissolution by Agreement

Any partnership firm can be dissolved by issuing a notice agreement to all the partners of the firm. If all the partners are in agreement on dissolution, then the partnership firm can be dissolved. This type of dissolution is the most common type and is called as voluntary dissolution.

Dissolution by Notice

If a partnership firm is at will, then any one of the partners of that firm could dissolve it by issuing a notice to the other Partners. In the notice, the Partner must provide the reasons for the dissolution of the partnership firm in writing. In this mode of dissolution, the notice stands effectively from the date of issue if in case it doesn’t hold any predefined date of dissolution of the firm and therefore the firm gets dissolved once after the date of receipt of the notice.

Insolvency of Partners

If all the partners of the firm are declared as insolvent or even any one of them appear inactive at an unsound state of mind, then the partnerhsip firm should be mandatorily dissolved.

Commitment to Illegal Business

Under certain circumstances, the activities of the business firm might be declared as illegal where the law of the land does not permit certain activities of the partnership firm. In such a case, the partnership firm can be dissolved by agreement of the Partners or through notice to the Partners.

Death of a Partner

A partnership firm must be dissolved in the event of death of a partner where he upholds the roles and responsibilities of an acting chairperson amongst the other partners of the business firm.

Expiry of Term

In case the Partners agreed and the partnership deed of a firm contains a certain date on which the firm must be dissolved, then such terms must be abided.

Completion of Work or Contract

A partnership firm could be started to accomplish a specified business purpose or contract. Hence, on completion of the work or contract, the partnership firm can be dissolved as per the agreement.

Resignation of Partner

A partnership firm can be dissolved if any one of the registered partners does not have the interest to continue the business further due to any misunderstandings with other partner or financial loss.

Other Related Guides

LLP Registration Requirements LLP Registration Requirements Limited Liability Partnership (LLP) is a type of legal entity that was introduced in the year 2010 as a hybrid between ...
LLP vs Partnership Firm LLP vs Partnership Firm LLP was introduced in the year 2010 in India to provide Entrepreneurs with an alternative to Partnership Firms. The purpose o...
Addition and Removal of Partners Addition and Removal of Partners Any slight changes made in the relationship between partners in a partnership firm would result in the reconstitutio...
Conversion of Partnership Firm into LLP Conversion of Partnership Firm into LLP The Limited Liability Partnership Act of 2008 introduced Limited Liability Partnerships (LLP) in India to p...
2018 LLP Registration Process 2018 LLP Registration Process The second half of 2018 saw the successful initiation of Ease of Doing Business (EoDB) reforms that changed the game by...

Post by Yogesh Kumar

IndiaFilings is India's largest online compliance services platform dedicated to helping people start and grow their business, at an affordable cost. We were started in 2014 with the mission of making it easier for Entrepreneurs to start their business. We have since helped start and operate tens of thousands of businesses by offering a range of business services. Our aim is to help the entrepreneur on the legal and regulatory requirements, and be a partner throughout the business lifecycle, offering support at every stage to ensure the business remains compliant and continually growing.