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Karnataka class 12 commerce Accountancy Difference between Dissolution of partnership and partnership firm

Karnataka class 12 commerce Accountancy Difference between Dissolution of partnership and partnership firm

Karnataka class 12 commerce Accountancy Difference between Dissolution of partnership and partnership firm 

Dissolution of Partnership and Dissolution of Partnership Firm

The term dissolution, referred in relation to a partnership business generally denotes the winding up of the business. However, there is a difference between ‘dissolution of partnership’ and ‘dissolution of the partnership firm’. The former indicates ending of agreement only to replace it with a new one, but the latter indicates the ending of partnership business altogether. The following points may be noted in comparison between the two:

Dissolution of Partnership

Only the agreement is dissolved, no physical disposal takes place.

The partners will continue to run the business with a new agreement.

Limited effect on employees or debtors and creditors of the business

Many dissolutions of agreement can take place during the life of a partnership business.

Admission, retirement and or death of a partner can result in compulsory dissolution of existing agreement.

Dissolution of Partnership Firm

The Firm is dissolved, by selling off assets and settling liabilities.

The partners will discontinue the business

Since the business is closed down it affects the workers, debtors and creditors of the firm

Dissolution of firm can take place only once in the lifetime of a partnership business.

 

None of these events can lead to a compulsory dissolution of the firm.

Karnataka class 12 commerce Accountancy Difference between Dissolution of partnership and partnership firm

Karnataka class 12 commerce Accountancy Difference between Dissolution of partnership and partnership firm

Karnataka class 12 commerce Accountancy Difference between Dissolution of partnership and partnership firm

Karnataka class 12 commerce Accountancy Difference between Dissolution of partnership and partnership firm

Dissolution of a firm – Dissolution of a partnership firm may take place without the intervention of court or by the order of a court, in any of the ways specified later in this section. It may be noted that dissolution of the firm necessarily brings in dissolution of the partnership.

Dissolution of a firm takes place in any of the following ways:

1. Dissolution by Agreement: A firm is dissolved :

  • with the consent of all the partners or
  • in accordance with a contract between the partners.

2. Compulsory Dissolution: A firm is dissolved compulsorily in the following cases:

  • when all the partners or all but one partner, become insolvent, rendering them incompetent to sign a contract;
  • when the business of the firm becomes illegal; or
  • when some event has taken place which makes it unlawful for the partners to carry on the business of the firm in partnership, e.g., when a partner who is a citizen of a country becomes an alien enemy because of the declaration of war with his country and India.

3. On the happening of certain contingencies: Subject to contract between the partners, a firm is dissolved :

  • if constituted for a fixed term, by the expiry of that term;
  • if constituted to carry out one or more ventures, by the completion thereof;
  • by the death of a partner;
  • by the adjudication of a partner as an insolvent.

4. Dissolution by Notice: In case of partnership at will, the firm may be dissolved if any one of the partners gives a notice in writing to the other partners, signifying his intention of seeking dissolution of the firm.

5. Dissolution by Court: At the suit of a partner, the court may order a partnership firm to be dissolved on any of the following grounds:

  • when a partner becomes insane;
  • when a partner becomes permanently incapable of performing his duties as a partner;
  • when a partner is guilty of misconduct which is likely to adversely affect the business of the firm;
  • when a partner persistently commits breach of partnership agreement;
  • when a partner has transferred the whole of his interest in the firm to a third party;
  • when the business of the firm cannot be carried on except at a loss; or
  • when, on any ground, the court regards dissolution to be just and equitable.

Karnataka class 12 commerce Accountancy Difference between Dissolution of partnership and partnership firm

Dissolution of partnership changes the existing relationship between partners but the firm may continue its business as before. The dissolution of partnership may take place in any of the following ways:

  • Change in existing profit sharing ratio among partners;
  • Admission of a new partner;
  • Retirement of a partner;
  • Death of a partner;
  • Insolvency of a partner;
  • Completion of the venture, if partnership is formed for that; and
  • Expiry of the period of partnership, if partnership is for a specific period of time;

Karnataka class 12 commerce Accountancy Difference between Dissolution of partnership and partnership firm

Dissolution of a partnership firm can take place on account of any of the following reasons:

Dissolution by Agreement: When the partners themselves reach an agreement to discontinue their business for whatever reason, it is known as dissolution by agreement.

Compulsory Dissolution: Compulsory dissolution takes place when the business of the firm is declared illegal, or the partners become insolvent or the citizen of an enemy country happens to be partner of the firm.

Dissolution by notice: A partner can demand dissolution of a partnership at will, by serving a notice to the firm.

Dissolution by Court: Court may initiate dissolution of a firm under the following circumstances:

  1. When one of the partners has become of unsound mind
  2. When a partner is guilty of misconduct which may affect the business
  3. When a partner commits wilful breach of contract
  4. Any other reason which the court may find adequate

Dissolution by the expiry of a pre determined period or completion of event: This dissolution takes place in case of particular partnerships which are formed for a specific period or the completion of a specific project. Such partnerships will be dissolved at the completion of the specific period of or the project as the case may be.

Karnataka class 12 commerce Accountancy Difference between Dissolution of partnership and partnership firm

We have seen about the reconstitution of a partnership firm which takes place on account of admission, retirement or death of a partner. In such a situation while the existing partnership is dissolved, the firm may continue under the same name if the partners so decide. In other words, it results in the dissolution of a partnership but not that of the firm. According to Section 39 of the partnership Act 1932, the dissolution of partnership between all the partners of a firm is called the dissolution of the firm. That means the Act recognizes the difference in the breaking of relationship between all the partners of a firm and between some of the partners; and it is the breaking or discontinuance of relationship between all the partners which is termed as the dissolution of partnership firm. This brings an end to the existence of firm, and no business is transacted after dissolution except the activities related to closing of the firm as the affairs of the firm are to be wound up by selling firm’s assets and paying its liabilities and discharging the claims of the partners

Karnataka class 12 commerce Accountancy Difference between Dissolution of partnership and partnership firm

Karnataka class 12 commerce Accountancy Difference between Dissolution of partnership and partnership firm

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