Question
Write the circumstances under which a firm is dissolved.
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Answer
A partnership firm can be dissolved in any of the following ways:
- By Mutual Agreement (Sec. 40): A partnership firm may be dissolved when all the partners agree for its dissolution. Since a partnership firm is set up by an agreement, it can be dissolved by an agreement.
- Compulsory Dissolution (Sec. 41): A firm is compulsorily dissolved in the following cases:
- When all or all but one partner of the firm becomes insolvent.
- When business of the firm becomes unlawful.
- On Happening of an Event (Sec. 42): A firm may be dissolved on the happening of any one of the following incidents:
- On the insolvency of a partner.
- On the fulfilment of the object for which the firm was formed
- On the expiry of the period for which the firm was formed.
- By Notice (Sec. 43): When the duration of the partnership firm is not fixed and it is at will, any partner by giving notice to other partners can dissolve the firm.
- By order of the Court (Sec. 44): The Court may on an application by a partner, order the dissolution of the partnership firm under the following circumstances:
- When a partner has become of unsound mind.
- When a partner, other than the partners, filing a suit has become permanently incapable of performing his duties as a partner.
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