Last updated: June 21st, 2018 4:28 PM

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.