Business Law

Dissolution Of Partnership Firm

Dissolution of partnership: When a partner of the firm breaks his relation with the other partners, and the other partners continue to operate the business of the firm, it is deemed be a dissolution of partnership. In such a case, the firm continues to exist, but the contract between the partners is terminated when one or more partners separate from the firm.

The remaining partners make a new contract and continue the business of partnership. Even if one partner separates from the partnership, the relations between the partners are changed and need to be redefined. The existing partnership is over, and a new partnership is established. 

Dissolution of firm: A firm is deemed to be dissolved when the relations between all partners break down. Dissolution terminates the business of the firm, and necessarily implies that the partnership is terminated. But dissolution of a partnership does not necessarily mean the dissolution of the firm. Even if there are only two partners after the dissolution of a partnership, then can enter into a new contract and continue with the firm’s business.

Difference between Dissolution of Firm and Dissolution of Partnership

The dissolution of a firm occurs only when the relations between all partners partnership is dissolved when the relation of one partner with the other partners break down and the other partners keep on doing business, he mutual agreement under the firm’s name. The distinction between the two will be clear from the following table:

Sr. No.Basis of Difference Dissolution of Partnership Dissolution of Firms
1Condition of Dissolution When the firm is dissolved, the partnership terminates. It is not essential for the firm to be dissolved on the termination of partnership .
2Continuation/Stoppage Of BusinessThe firm’s business does not necessarily stop on the dissolution of partnership.The business of the firm stops on its dissolution.
3Relations Between PartnersThe relation between all partners does not end with the dissolution of partnership The relation between allpartners terminates with the dissolution of the firm.
4Disbursement Of ShareOn the dissolution of partnership, the outgoing partner is given his share in the firm’s assets All assets of the firm aredistributed among the partners on its dissolution.

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