Page 173 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes Self Assessment

Fill in the blanks:
11. A partnership entered into for a fixed period of time, the partners still carry on the business
even after the expiry of the fixed period so the partnership becomes………………………...

12. …………………….partner means a partner who has retired from a firm.

6.7 Dissolution

6.7.1 Dissolution of Firm and Dissolution of Partnership

Section 39 provides that the dissolution of partnership between all the partners of a firm is called
the “dissolution of the firm”. It follows that if the dissolution of partnership is not between all
the partners, it would not amount to “dissolution of firm”, but it would nevertheless be
“dissolution of partnership”. Thus, dissolution of firm always implies dissolution of partnership,
but dissolution of partnership need not lead to dissolution of firm. Dissolution of partnership
may involve merely a change in the relation of the partners and not the dissolution of the firm.

Example: Where A, B and C were partners in a firm and C died or was adjudged insolvent,
the partnership firm would come to an end; but if the partners had agreed that the death,
retirement, insolvency of the partner would not dissolve the firm on the happening of these
contingencies, the ‘partnership’ would certainly come to an end although the ‘firm’ or as the Act
calls it, a ‘reconstituted firm’, might continue under the same name.
Thus, a reconstitution of a firm involves a change in the relation of partners whereas in the case
of dissolution of firm, there is complete severance of relationship between all partners. Admission
of a new partner amounts to reconstitution of the firm.

Example: Ram, Rahim and Singh are partners of a firm RRS & Co. Singh retires or dies
and the partnership deed provides that in the event of such a happening, the firm shall continue.
Then the firm will be called a reconstituted firm, having two partners – Ram and Rahim. Now
the relation between Ram and Rahim does not remain the same as it was between Ram, Rahim
and Singh.

Example: Ram, Rahim and Singh are partners in a firm. Robert is introduced as a new
partner. Now the relation between Ram, Rahim, Singh and Robert will be different from the
relation between Ram, Rahim and Singh. Thus, the firm consisting of the four partners is a
reconstituted firm.

6.7.2 Another Classification of Methods of Dissolution

The different methods of dissolution are: (i) mutual agreement, (ii) notice, (iii) operation of law,
(iv) the happening of a certain contingency and (v) a decree of a court.

Dissolution of partnership: It may be reiterated that the dissolution of partnership may lead to
dissolution of firm. The dissolution of partnership takes place in any of the following
circumstances:

(i) By the expiry of term: Where the partnership is for a fixed term, the firm gets dissolved at
the end of the period, unless the partners have made a contract to the contrary [s.42(a)].

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