BCOC-133 BUSINESS LAW CHAPTER-14 DISSOLUTION OF PARTNERSHIP FIRM

 

BCOC-133 BUSINESS LAW
CHAPTER-14 DISSOLUTION OF PARTNERSHIP FIRM

Dissolution of Partnership: Explanation and Main Points

1. Definition:

Dissolution of partnership refers to the termination or winding up of the relationship among partners in a business entity.

- It involves the cessation of the partnership, either voluntarily or due to certain events, leading to the settlement of affairs and distribution of assets.

2. Dissolution vs. Dissolution of Firm:

-Dissolution of Partnership: Involves a change in the relationship among partners.

-Dissolution of Firm: Extends to the termination of the partnership, requiring the settlement of all its affairs.

3. Modes of Dissolution of Firm Without Court Order:

- Mutual Agreement: Partners decide to dissolve the partnership.

- Compulsory Dissolution: Automatic dissolution due to events like insolvency, illegality, or certain contingencies.

-On Happening of Certain Contingencies: Firm dissolves on specified events like the completion of a fixed term or death of a partner.

- Dissolution by Notice: Partnership at will can be dissolved by any partner through written notice.

4. Dissolution by an Order of Court:
vInsanity:- Partner's incapacity due to insanity.                                     vPermanent Incapacity:- Partner becomes permanently incapable.

vMisconduct:- Partner's actions adversely affect business.                     vPersistent Breach of Agreement:- Willful violation of partnership agreements.

vTransfer of Interest:- Improper transfer of a partner's interest.

vPerpetual Losses:- Continuous losses making future business unsustainable.

vAny Other Just & Equitable Ground:-Court intervenes based on fairness and justice.

Consequences of Dissolution of Firm: Explanation and Main Points:

1. Definition:

-Dissolution of a firm signifies the complete breakdown of the partnership, involving the cessation of business operations and the settlement of affairs.

2. Rights of a Partner on Dissolution:
- Right of Equitable Distribution: Partners entitled to the

distribution of firm's property after settling debts and liabilities.

Return of Premium on Premature Winding-Up:- If a partner paid a premium and the firm dissolves prematurely, the partner is entitled to the return of the premium.

- Rights in Case of Dissolution Due to Fraud or Misrepresentation:- Partners can claim damages, exercise lien on surplus assets, and seek indemnification.

3. Liabilities of a Partner on Dissolution:

- Liability for Acts After Dissolution:- Partners remain liable for acts done after dissolution until public notice is given.

- Liability for Winding Up Affairs:- Partners are still obligated to wind up the firm's affairs and complete unfinished transactions.

4. Settlement of Accounts:-

- Sharing of Deficiency:- Losses and deficiencies are paid first out of profits, then capital, and finally, by partners individually.

- Application of Assets:- Assets are applied in paying off third-party debts, advances to partners, capital, and surplus distribution.

Payment of Firm's Debts and Separate Debts of Partners:- Private assets of partners applied first to pay their private debts, and any surplus can be used for firm debts.

Loss Arising from Insolvency:- If a partner is insolvent, the loss from their deficiency is shared by solvent partners based on their respective capital ratios.

5. Sale of Goodwill:
Inclusion of Goodwill in Assets:- Goodwill is included in the

assets after dissolution.
Conditions for Use:- Partners can carry on a similar business

but are subject to conditions regarding firm name, representation, and solicitation.

Restrictions on Similar Business:- Partners may enter agreements restricting them from similar businesses, valid if reasonable.

These consequences outline the rights, liabilities, and procedures for partners during the dissolution process, ensuring a fair and orderly settlement of the firm's affairs.