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Explain the process of dissolution of partnership firm.

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Dissolution means breaking of relationship among the partners. As per Section 39 of the Indian Partnership Act 1932, the dissolution of firm implies that not only partnership is dissolved but the firm losses its existence, i.e., after dissolution the firm does not remain in business. Dissolution of partnership firm implies discontinuation of the business of the partnership firm. Dissolution involves winding up of business, disposal of assets and paying off the liabilities and distribution of any surplus or borne of loss by the partners of the firm. As per the Partnership Act 1932, a partnership firm may be dissolved in the following manners.

(i) Dissolution by Agreement: As a firm is formed with the consent of all partners with a mutual agreement. Dissolution can also be there with the help of agreement. 

It happens in following two ways. A firm may be dissolved 

(a) When all the partners agree to dissolve the firm. 

(b) When there is any term related to dissolution of firm in the partnership agreement. 

(ii) Compulsory Dissolution: A firm may be dissolved compulsorily in the following condition (a) In case, all the partners or all except one partner become insolvent or insane. 

(b) If the business becomes illegal. 

(c) Where all the partners except one decide to retire from the firm. 

(d) Where all the partners except one die. 

(iii) Dissolution by Notice: When partnership is at will then the partnership firm may be dissolved, if any partner give notice in writing to all the other partners expressing his/her intention to dissolve the firm. 

(iv) Dissolution by Court: A court may order for dissolution if a suit is filed by a partner, as per Section 44 of Indian Partnership Act, 1932. 

The court may order to dissolve a partnership in following conditions 

(a) A partner becomes insane. 

(b) A partner commits breach of agreement wilfully. 

(c) When a partner’s conduct affects the business. 

(d) When a partner transfers his interest to a third party. 

(e) If business cannot be continued. 

(f) If a partner becomes incapable of doing business. 

(g) If court thinks dissolution to be just and equitable on any ground. 

Besides these, above mentioned circumstances, a partnership firm may be dissolved if the court at any stage finds dissolution of the firm to be justified and inevitable.

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