Circumstances under which a firm is dissolved

The four circumstances under which a firm is dissolved are follows:

By Agreement: A firm may be dissolved with the consent of all the partners or in accordance with a contract between the partners.

Dissolution by Notice: In case of partnership at will, the firm may be dissolved by any partner giving notice in writing to all other partners of his intention to dissolve the firm.

Compulsory Dissolution: A firm is compulsory dissolved if :

  • All the partners except one are insolvent or all,partners are insolvent.
  • The business of partnership has become illegal by happening of an event.

Dissolution by Court: The court may at the move of a partner dissolve a firm in any one of the following ways:

  • When a partner has become of unsound mind.
  • When a partner has become permanently incapable of performing his duties as a partner.
  • When a partner is guilty of misconduct which is likely to affect prejudicial the business of the firm.
  • When a partner willfully and persistently commits breach of agreement regarding management of the affairs of the firm.
  • When a partner has transferred the whole of his interest to a third party.
  • When the business of the firm cannot be carried on except at a loss.
  • Any other ground which render it just and equitable that the firm should be dissolved.

Subject to contract between the partners a firm is dissolved

  • By the expiry of the term for which the firm was formed.
  • By the completion of the venture for which the firm was formed.
  • By the death of a partner, or by the adjudication of a partner as an insolvent.

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