What Are The Modes Of Dissolution Of A Firm?


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Nadeem Ishtiaq answered
According to Indian Partnership Act 1932 also adopted in Pakistan follow are various modes of dissolution of firm:

1. Dissolution by Agreement.
A firm is a creation of an agreement between partners. Similarly, the partners may agree to terminate the firm and the firm shall be dissolved.

2. Compulsory Dissolution.
The Partnership Act 1932 provides that under the following circumstances the firm shall be compulsorily dissolved:
(a) All of the partners are declared as insolvent.
(b) All of the partners except one are declared as insolvent.
(c) The business carried on by the firm becomes unlawful.

3. Contingent Dissolution.
On the happening of anyone of the following contingencies, the partners of a firm may decide to close the business of the firm.
(a) If the firm is constituted for a fixed term, on the expiry of that term.
(b) If the firm is constituted to carry out one or more projects, on the completion thereof.
(c) If a partner of the firm dies.
(d) If a partner of the firm is declared as insolvent.

4. Dissolution by Notice.
Where the partnership is at-will, the firm may be dissolved by any partner by giving a notice in writing to all the other partners of his intention to dissolve the firm.
The firm is dissolved as from the date mentioned in the notice as date of dissolution or if no date is mentioned, as from the date of communication of the notice.

5. Dissolution by Court.
The court may dissolve the firm if a partner files a suit for dissolution of the firm on any of the following grounds:
(a) Insanity. That a partner has become of unsound mind.
(b) Permanent Incapacity. That a partner, other than the partner suing, has become in any way permanently incapable of performing his duties as partner.
(c) Misconduct. That a partner, other than 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.
(d) Breach of Agreement. That a partner, other than partner suing, wilfully or persistently commits breach of agreement relating to the management of the affairs of the firm.
(e) Transfer of Interest. That a partner, other than partner suing, has transferred whole of his interest in the firm to a third party or has allowed his share to be sold in execution of a decree.
(f) Losses. That the business of the firm cannot be carried on except at a loss.
(g) Just and Equitable Cause. On any other ground which renders it just and equitable that the firm should be dissolved.

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