SOME FAQs ABOUT DISSOLUTION OF A PARTNERSHIP
1. What are the circumstances in which a partnership firm is compulsorily dissolved?
A. A firm is dissolved-
a) By the adjudication of all the partners or of all partners but one as insolvent or,
b) By the happening of any event which makes it unlawful for the business of the firm to be carried on or for the partners to carry it on in partnership.
2. What are the contingencies on the happening of which a partnership firm is dissolved?
A. Subject to contract between the partners a firm is dissolved –
a) If constituted for a fixed term, by the expiry of that term
b) If constituted to carry out one or more adventures or
undertakings by the completion thereof.
c) By the death of a partner.
d) By the adjudication of a partner as an insolvent.
3. What is meant by partnership at will?
A. Where no provision is made by contract between the partners for the duration of their partnership, or for the determination of their partnership, the partnership is said to be at will.
4. How can a partnership at will be dissolved?
A.Where the partnership is at will the firm may be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the firm.
5. For a partnership at will when is the firm treated as dissolved?
A. The firm is dissolved as from the date mentioned in the notice as the date of dissolution or, if no date is so mentioned, as from the date of the communication of the notice.
6. What are the circumstances in which a court can dissolve a partnership firm?
A. At the suit of a partner, the Court may dissolve a firm on any of the following grounds, namely:
a) That a partner has become of unsound mind.
b) That a partner, other than the partner suing, has become in any way permanently incapable of performing his duties as partner.
c) That a partner, other than the partner suing, is guilty of conduct which is likely to affect prejudicially the carrying on of the business.
d) That a partner, other than the partner suing, willfully or persistently commits breach of agreement relating to the management of the affairs of the firm or the conduct of its business, or otherwise so conducts himself in matter relating to the business that it is not reasonably practicable for the other partners to carry on the business in partnership with him.
e) That a partner, other than the partner suing has in any way transferred the whole of his interest in the firm to a third party.
f) That the business of the firm cannot be carried on save at a loss.
g) On any other ground which renders it just and equitable that the firm should be dissolved.
7. What is the extent of liability of partners for acts done after dissolution?
A. After the dissolution of a firm, the partners continue to be liable as such to third parties for any act done by any of them which would have been an act of the firm if done before the dissolution until public notice is given of the dissolution.
8. What are the instances where the authority of the partner to bind the firm and mutual rights and obligations of the partner continue even after dissolution?
A. After the dissolution of a firm the authority of each partner to bind the firm, and the other mutual rights and obligations of the partners, continue notwithstanding the dissolution, so far as may be necessary to wind up the affairs of the firm and to complete transactions begun but unfinished at the time of the dissolution, but not otherwise.
9. Can a partner carry on similar business using firm’s name?
A. After a firm is dissolved, every partner or his representative may in the absence of a contract between the partners to the contrary, restrain any other partner or his representative from carrying on a similar business in the firm name or from using any of the property of the firm for his own benefit, until the affairs of the firm have been completely wound up.
Provided that where any partner or his representative has bought the goodwill of the firm, the said partner can use the firm name.
10. What is meant by goodwill of a firm?
•It is the value of reputation and connection which a firm establishes over time due to its integrity, efficient services to customers, quality of its products, industry etc.
•It is a commercial rather than a legal term.
•Supreme Court has held that the goodwill is an intangible asset of a firm. It is the whole advantage whatever it may be of the reputation, and the connections formed with the customers together with the circumstances which make the connections durable.
11. Can a partner who has bought the goodwill of the firm, use the firm name after dissolution of firm.
A.Yes.
12. What happens to a partnership firm of 2 partners when one of the partners resigns?
A. It gets dissolved.
13.Under what circumstance the individual asset of a partner becomes a partnership firm asset?
To be treated as partnership firm property, the individual property of a partner needs to be explicitly agreed by the partner to be brought in as a partnership asset.
Even if a partner uses his personal property to do business of the firm, it does not become a property of a firm unless he specifically agrees to do so.