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Dissolution of 

A Partnership Firm
  
o Abbas Javed Butt
o Hina Khan
o Muhammad Sohaib
o Fakhar Zaman
What is a Partnership:

 Partnership is the relation between persons who have agreed


to share profits of business carried on by all or any of them
acting for all.

 The Pakistani law of Partnership is based on the provisions of


the English law of Partnership.
 Complete breakage between relations of all
partners is termed as dissolution of firm. After
such dissolution , the firm no more exists.

 If some partner is changed/added/ goes out, the


relation between them changes and hence
Partnership is dissolved, but the firm continues.
 Dissolution of Partnership is different
from dissolution of firm.
 Dissolution of Partnership is only
reconstruction of firm.
 Dissolution of firm means the firm no
more exists after dissolution.
 A firm is not said to be dissolved by the fact of one or
more members ceasing to be partners in it while others
remain, but only when all and every one of the members
of the firm cease to carry on its business in Partnership.

 A deed of dissolution must necessarily cover other


matters, which arise directly out of dissolution, such as
settlement of accounts, payment of amounts found due
on such settlement, closing down or continuation of
business collection of outstanding and payment of
liabilities.
 If a new firm is formed by agreement between
some of the former partners, it will nonetheless
be new, however closely that agreement may
follow on the dissolution of the old firm. Whether
a new firm is formed or not is a question of fact.
A partnership firm can be dissolved by many modes like

 Dissolution by Agreement
 Compulsory Dissolution
 Dissolution on the happening of certain contingencies
 Dissolution by notice of partnership at will
 Dissolution by the Court
 A firm may be dissolved with the consent of all the
partners or in accordance with a contact between the
partners.

 In addition to a dissolution clause where in a


partnership deed reference is made to the
Partnership Act, that where special provision is not
made in the deed the provisions of the Act shall apply, it
cannot be said that a partner of the firm is not entitled to
ask for dissolution of the firm and that only course open
him is to retire as provided by another clause in the
deed.
A firm is dissolved
 By the adjudication of all the partners or of
all the partners but one as insolvent.
 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
All partners or all the partners but one becoming insolvent

 A partner adjudged insolvent ceases from that date to


be a partner. If no partner or only one partner is left it is
obvious that there can no longer be a firm.

 Where one of two partners dies, the firm automatically


comes to an end and there is no partnership. The
surviving partner may enter into a partnership with the
heir of the deceased partner but it would be a
new partnership.
 Where a partner in a firm is adjudicated an insolvent, he
ceases to be a partner on the date on which the order of
adjudication is made, whether or not the firm is thereby
dissolved.

 If there are only two partners in a firm, and one of them


dies, the firm is dissolved and it cannot be said to be in
wishes of deceased partner, the remaining partner
admits a new partner, in law it is a new partnership.
 If A is a partner with ten other persons in a certain
business. An Act is passed which makes it unlawful for
more than two persons to carry on that business
in partnership. The partnership is thus dissolved.
 Commercial relations involving subjects of a state
which has become hostile, or persons carrying on their
business in the territory of such a state, had to be
considered in the light of two quite distinct rules of
common law, one as to personal disqualification, the
other as to trading with enemies.
According to section 42, subject to contract
between partners, a firm is dissolved on the
following contingencies:

 If constituted for a fixed term, by the expiry of


that term;
 If constituted to carry out one or more
adventures or undertakings, by the completion
 By the death of a partner; and
 By the adjudication of a partner as an insolvent.
 The term of the partnership being fixed is clearly
not a contrary provision under section 42. It may
also be noted here that even after the expiry of a
fixed term, by mutual consent partners may
continue the partnership. But if there is no such
mutual consent, the partnership is dissolved on the
expiry of the fixed term.

 If a partner dies or is adjudicated as an insolvent,


there in the absence of contrary contract between
partners, the partnership firm is dissolved.
 In such cases the nature of the undertakings and
the conduct of the partners are considered. If it is
found that the firm was constituted for one or
more undertakings, the firm is dissolved on the
completion of one or more undertakings.
 The main reason for this rule is that a law firm is
not a “person”, it is only a group and the name of
the firm is only the collective name of the persons
who constitute the firm.

 The firm is dissolved on the death of a partner. If


the surviving or remaining partners, a
new partnership comes into existence. So is the
case when a new partner is admitted.
 Where the partnership is at will the firm may be
dissolved by any partner giving notice to all the
other partners of his intention to dissolve the
firm.

 The firm is dissolved as form the date mentioned


in the notice as the date of dissolution or, if no
date is so mentioned, as from the date of
communication of the notice.
These are some steps of dissolution of partnership bye court given
below.
 A Partner Becoming o f Unsound Mind
 A Partner Becoming Permanently Incapable
 Partner Guilty Of Conduct Likely To Affect Prejudicially the
Carrying On Of The Business
 Willful or persistent breach of agreement relating to the
business or management of the affairs of the firm
 Transfer Of The Whole Interest In The Firm By A Partner To A
Third Party
 Perpetual Loss
 Just and Equitable
A Partner Becoming of Unsound Mind
At the suit of a partner, the court may dissolve a firm on the
ground that a partner has become of unsound mind, in which case
the suit may well be brought as well by the next friend of the
partner who has become of unsound mind as by any other
partner.

A Partner Becoming Permanently Incapable

At the suit of a partner, the court may dissolve a firm on the


ground that a partner, other than the partner suing, has become
in any way permanently incapable of performing his duties as
partner.
Partner Guilty Of Conduct Likely To Affect
Prejudicially The Carrying On Of The Business
At the suit of a partner, the court may dissolve a firm on the ground
that a partner, other than the partner suing, is guilty of conduct, which is
likely to affect prejudicially the carrying on of the business regard being
had to the nature of the business.

Willful or persistent breach of agreement relating to


the business or management of the affairs of the firm

At the suit of a partner, the court may dissolve a firm on the ground
that a partner, other than the partner suing, willfully or persistently
commits breach of agreements relating to the management of the affairs
of the firm .
Transfer Of The Whole Interest In The Firm By A
Partner To Third Party

At the suit of a partner the court may dissolve a firm on the


ground 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, or
has allowed his share to be charged to be sold in the recovery of
arrears of land revenue.

Perpetual Loss

At the suit of a partner, the court may dissolve a firm on the


ground that the business of the firm cannot be carried on save at
a loss.
Thus we can conclude that the firm is dissolved when all
the partners stop carrying on the partnership business.

If some partners dissociate from the firm and the


remaining partners continue the business of the firm,
the firm is not dissolved.

The dissolution of a firm is distinct from the retirement


of a partner because in latter situation others or
remaining partners continue the business of the firm
and the firm is not dissolved.

Thus dissolution of partnership between all the


partners of a firm is called dissolution of the firm.

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