DISSOLUTION OF PARTNERSHIP

Aditya Bansal (I004)

Saloni Bansal (I005)

Poulami Bansal (I006)

CONTENTS

Partnership

Dissolution

Types of partnerships

Modes of dissolution By court orders

Without the intervention of the court

Dissolution of Partnership and Dissolution of Firm

Settlement of accounts between partners

Payment of firm debts and separate debts

Debts of firm vs personal debts of the partners

PARTNERSHIP

As per the Indian Partnership Act of 1932,

Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.

A partnership is a strategic alliance or relationship between two or more people. Partnerships can be formal, where each party's roles and obligations are spelled out in a written agreement, or informal, where the roles and obligations are assumed or agreed to verbally.

A partnership firm is at times reconstituted with a change in partners. This happens either through a retirement or an admission of one or more partners, with some of the existing partners continuing. In such a case, for purposes of taxation, the same partnership firm is regarded as having continued with a change in constitution. Even if the change has occurred in the middle of a year, only one assessment is made for the year on the firm on its income for the entire year.

TYPES OF PARTNERSHIPS

GENERAL PARTNERSHIP A general partnership consists of two or more people who go into

business together and share in the profits. The general partners are each involved in the business operations and share liability on the business obligations.

LIMITED PARTNERSHIP A limited partnership consists of one or more general partners and

at least one limited partner. The limited partners contribute capital to the business, but do not get involved in the everyday functions and have only a limited liability.

A silent partner is one who still shares in d profits and losses of the business, but who is uninvolved in its management, and/or whose association with the business is not publicly known.

DISSOLUTION

Section 39 of the Indian Partnership Act, provides that “the dissolution of the partnership between all the partners of a firm is called the dissolution of a firm.”

If one or more partners bring the dissolution but the business is not brought to a close, then it is called a dissolution of a partnership. The remaining partners continue the firm’s business.

It may so happen that instead of a retirement and/or admission of partners, the existing partnership firm may be dissolved by executing a deed of dissolution, and a fresh firm is set up under a deed of partnership, which includes some or all of the partners of the earlier firm, and which takes over all or some of the assets and business of the earlier firm.

MODES OF

DISSOLUTION

By order of the court

Without the interference of the court

BY ORDER OF THE COURT

A partner may apply to the court for getting the firm dissolved. On getting such application by any of the partner the court may proceed to order the dissolution of the firm in the following circumstances:

If any of the partner becomes of unsound mind.

If a partner, other than the partner filing the suit is guilty of intentionally and persistently committing a breach of the partnership agreement.

If a partner, other than the partner filing the suit has transferred whole of his interest in the firm to a third party without the consent of the other partners.

If a partner, other than the partner filing the suit is guilty of misconduct.

If a partner, other than the partner filing the suit has become disabled to perform his duties as a partner.

If the court is satisfied that the business of the firm cannot be carried on except a loss.

WITHOUT INTERFERENCE OF THE COURT

Dissolution by agreement

Compulsory dissolution

Dissolution due to certain circumstances

Dissolution by notice

DISSOLUTION OF

PARTNERSHIP AND

DISSOLUTION OF A FIRM

MODE OF SETTLEMENT

OF ACCOUNTS BETWEEN PARTNERS

Section 48 of the Partnership Act provides the following rules:

Losses, including deficiencies of capital, shall be paid first out of profits, next out of capital and, lastly, if necessary, by the partners individually in the proportion in which they were entitled to share profits.

The assets of the firm, including any sums contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and order:-

In paying the debts of the firm to third parties.

In paying to each partner rateably what is due to him from the firm for advances as distinguished from capital.

In paying to each partner rateably what is due to him on account of capital and

The residue, if any shall be divided among the partners in the proportions in which they were entitled to share profits.

PAYMENT OF FIRM DEBTS

AND SEPARATE

DEBTS

Where there are joint debts due from the firm, and also separate debts due from any partner, the property of the firm shall be applied in the first instance in payment of the debts of the firm, and if there is any surplus, him. The separate property of any partner shall be applied first in the payment of his separate debts and the surplus ( if any) in the payment of the debts of the firm.

DEBTS OF FIRM

VERSUS PERSONALDEBTS OF PARTNERS

• If assets of the firm are not sufficient to pay off the firm’s creditors, the partners may be required to make contributions because of the unlimited nature of the liability of the partner.

• In such a case, the partner will have the right to apply his personal assets in paying off his personal debts first.

• Thereafter, the remaining surplus of personal assets will be used for making his contribution to satisfy the unsettled portion of outside creditors.

• It is to be further noted that personal assets of the partner are individually owned assets excluding the personal property of wife (Streedhan).

THANK YOU