Closing a Partnership
Closing up a Public Limited Company
The dissolution of a partnership and the dissolution of a firm follow different processes. The dissolution of a partnership happens when a partner ceases to be associated with the business. The dissolution of a firm refers to the winding up the business.
When a partnership is dissolved, the business of the firm does not come to an end. A new agreement is drafted between the partners that remain. In the case of dissolution of a firm, the business of the firm ceases.
Explained below are the conditions under which a firm may be dissolved:
- Dissolution by Agreement: In this case the partnership firm may be dissolved according to a pre-made contract between the partners.
- Compulsory Dissolution: Compulsory dissolution happens under the following circumstances:
(a) When all the partners but one are declared as insolvent
(b) When the business is deemed unlawful due to any of its activities.
- Dissolution due to Contingencies:
A firm stands dissolved when any of the following contingencies take place:
- When the partnership period expires (in the case that it was for a fixed period of time)
(b) On completion of the objective for which the firm was formed.
(c) On the death of a partner.
(d) On the declaration of any of the partners as an insolvent.
- Dissolution by Court:
A court can order the dissolution of a firm under any of the following conditions:
(a) Any partner has become of unsound mind.
(b) When a partner becomes permanently incapable of performing his partner duties.
(c) A partner’s misconduct is likely to affect prejudicially the business of the firm.
(d) A partner willfully breaches the terms of the partnership agreement.
(e) A partner transfers his interest in the firm to a third party in an unauthorized manner.
(f) The business of the firm can only continue at a loss.
(g) Any other reasonable grounds justify the dissolution of the firm.