Dissolution of a partnership firm under Indian Partnership Act
Dissolution of a partnership involves the dissolution or termination of any contractual arrangement between the partners. This means that the operation of the partner business is suspended and that the funds are provided to fund a separate collection of liabilities.
There is a distinction, however, between these two definitions (dissolution of partnership and partnership firm). Dissolution of the partnership means the end of the partnership business, while dissolution of the partnership company means the end of the partnership between the partners and the firm. Suppose that if the current partner dies, retires and is unable to settle the debt, the remainder of the partners will purchase the share percentage of the leaving partner and resume the operation of the company under the same title.
The Indian Partnership Act, 1932, is an act passed by the Parliament of India to govern partnerships in India. It was authorised by the Governor-General on 8 April 1932 and entered into force on 1 October 1932. Prior to the enactment of this Act, partnerships were regulated by the terms of the Indian Contract Act. The act is governed by the Ministry of Corporate Affairs. The Act does not extend to Limited Liability Partnerships as they are regulated by the Limited Liability Partnership Act, 2008. Part VI of the Indian Partnership Act, 1932, from Section 39 to Section 55, which explains the nature of the partnership and the various forms in which the partnership can be dissolved.
TYPES OF DISSOLUTIONS
The dissolution of the partnership can be placed in the following ways:
- Dissolution by agreement: a partnership firm may be dissolved if both parties agree to dissolution or to comply with the terms of the agreement. Legally binding arrangements must be negotiated between the current parties.
- Dissolution by notice: when a partnership is established on its own initiative, the dissolution of the company may take place if one of the partners gives a written notice to the other partners of its intention to dissolve the firm.
- Contingent Dissolution: In this case, a relationship can be broken on the occurrence of any of the following contingencies:
- When the term ends, whether the partnership is established for a fixed term.
- Upon completion of a particular undertaking for which the partnership has been created.
- The death of a partner
- Insolvency of a partner
- Compulsory dissolution: the compulsory dissolution of the company shall take place in the following cases:
- When any or all partners except one partner are considered insolvent;
- When the company of the firm becomes illegal for whatever reason.
- Where the company of the firm becomes illegal as a result of a case.
- Dissolution by Court: The termination of a partnership can be required by the court on the following grounds:
- When a companion becomes insane.
- If a partner is permanently unable to fulfil his duties as a partner.
- If the partner is accused of wrongdoing, which is more likely to harm the credibility and company of the firm.
- When a partner commits a violation of the partnership agreement on an ongoing basis.
- When a partner transfers all of his or her interest or share of the business to a third party.
- Where the operation of the company cannot be carried out with the exception of losses.
- Where the decision of the court on the breakup of the company is to be fair and equal on every ground.
Benefits and drawbacks of a partnership firm
There are always benefits and drawbacks of all. The relationship company also has some benefits and drawbacks, such as:
- Partnership companies are easy to start in most situations, as there is just a need for a partnership act.
- Decision-making is one of the most challenging problems in any organisation, but one can make decisions quickly in a partnership firm and the partners can enjoy a wide range of forces.
- A collaboration company can easily raise funds compared to other companies. As with the contribution of several partners, collecting funds is becoming more convenient.
- There are less opportunities for risk in partnership companies, as the risk is shared by all partners in the group.
- There is unlimited responsibility for this. As a partner, it is directly responsible for any damages suffered by the partnership firm.
- It is important for both partners to work together if one partner has any confidence problems other than that which can lead to a difficult situation for the partnership company.
- The maximum number of partners could be 20. In the case of the Limitated Liability Partnership (LLP), there is no limitation on the number of members.
- A relationship may be broken due to the death of the partner or the insolvency of the partner.
We may conclude that the company is dissolved when all partners cease to operate the partnership business. If any partners decouple from the firm and the remaining partners continue the business of the firm, the firm will not be dissolved. The breakup of a company is different from the retirement of a partner since, in the latter case, other or surviving partners continue the business of the firm and the firm is not dissolved. The dissolution of the relationship of all the partners of the company is thus called the dissolution of the firm.
Clearly, the act offers grounds for the termination of the relationship, so that no one can take advantage of the same and it also helps to maintain a healthy atmosphere in the business.
The dissolution of the partnership brings about a shift in the relationship between the partners, but the partnership between them does not end entirely. The relationship shall proceed for the purpose of realising the assets or resources of the company. Further after the dissolution of the company, the power of each partner to bind the firm and the other contractual rights and obligations of the partners shall continue, irrespective of dissolution, to the degree that it may be appropriate to close the business of the firm and to complete the transactions begun but not completed at the time of dissolution, but not otherwise.
Author: Sampark Sampad,
National Law University, Odisha 2nd year/ Student