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Dissolution of a Firm

A firm may be dissolved in the following manner

  1. Dissolution by Court
  2. Dissolution by agreement
  3. Dissolution by operation of law
  4. Dissolution on the happening of certain contingencies
  5. Dissolution by notice

Dissolution by Court

The court may dissolve a firm at the suit of any partners on any of the following grounds namely :

  1. Insanity of a Partner : that a partner has become of unsound mind. The insanity of a partner does not ipso facto dissolve the firm and the next friend or continuing partners has to file suit foe dissolution.
  2. Permanent Incapacity of a Partner : that a partner has become permanently incapable of performing his duties as partner.
  3. Conduct Affecting Prejudicially The Business : that a partner is guilty of conduct, which is likely to affect prejudicially the carrying on the business of the firm.
  4. Breach of Partnership Agreement: that a partner willfully or persistently commits breach of agreements relating to the management of the affairs of the firm or the conduct of it - s business or otherwise conducts himself in matters relating to the business, that it is not reasonably practical for the other partners to carry on the business with him.
  5. Transfer of Interest of a Partner: that a partner has in any way transferred the whole of his interest in the firm to a third party.
  6. Loss: that the business of the firm cannot be carried on save at a loss
  7. Just And Equitable:

    on any other ground that renders it just an equitable that the firm should be dissolved.

Dissolution by Agreement

A firm may be dissolved with the consent of all the partners or in accordance with the contract between the partners. The partnership agreement may contain a proviso that the firm will be dissolved on the happening of certain contingency.

Dissolution by Operation of Law

A firm is compulsorily dissolved on the following grounds

  1. Insolvency of partners
  2. By the happening of any event which makes it unlawful for the business of the firm to e carried on.

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