Today at MyOnlineCA we are talking about Dissolution or closure of Partnership Firm. For a partnership firm to terminate its existence in business, it has to dissolve itself. This process of separation from the business is known as dissolution of a partnership firm and involves the sale or disposal of all assets of the firm and final settlement of all of its liabilities and accounts. Any sum of an amount that remains in the business is transferred among partners equally or in the profit-sharing ratio mentioned in the partnership deed.Dissolution Of Partnership Firm

Therefore, the dissolution of a partnership firm is the decision that is taken collectively by all the partners to wrap-up the business and cancels the agreement made between them.

The Ways In which Dissolution of Partnership Firm can take place.

There are many ways in which Dissolution of Partnership Firm can be carried out, which are as follows:

Dissolution by Mutual Consent

The best and the easiest way to dissolve a partnership firm is by mutual consent. It means that all the partners agree to mutually dissolute partnerships through the Dissolution by Mutual Consent clause in the partnership agreement. Further, It means that the partners have taken the decision by consulting all partners and all have agreed to take this step and have no objection.

Dissolution by Notice

If the partnership business is a personal choice, any one partner or more partners can, through a straightforward and progressive notice, dissolve a partnership firm. The notice should indicate the date on which the dissolution will be imposed. Such a dissolution can be established by any individual partner after appropriate notice is issued.

Dissolution Due to Contingencies

Dissolution Due to Contingencies means that there are certain conditions wherein the partnership firm can be dissolved that are:

  • On account of the end of a project or a Business venture for a which partnership firm was formed to carry out with full potential
  • If the death of a partner happens in a partnership firm.
  • When one or more Partners becomes unable to move forward with the partnership as they became insolvent.
  • Some of the Partnership firms are formed for a specific period of time and when that period of time expires then The Partnership firm goes through a process of dissolution.

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Compulsory Dissolution

Certain development in the partnership firm can make the dissolution of a firm compulsory. For example, by happening of any event that is judged as illegal and in some manner, making it troublesome for the partnership firm to carry on its tenure of the business.

Dissolution by Court

In the Following cases a Partner or all Partners can take help of court for the Dissolution Of Partnership Firm:

Due to a breach of Agreement

When a Partner knowingly and deliberately performs any act that breaches any condition led down to the Partnership Deed Or Agreement This could lead to Dissolution Of Partnership Firm.

Due to Mental Instability

If a Partner becomes Mentally Unstable or disturbed and is not able to behave normally and sensibly, This situation can also lead to Dissolution of Partnership Firm.

Due to Misconduct

Misbehaviour or Misconduct by any partner in the business can become the reason for The dissolution of the partnership firm. Any partner or all partners in the business are misbehaving or acting in an inappropriate manner with others or not obeying to the signed agreement of the partnership will lead to a dissolution of the partnership by the filing of misconduct against them in the court.

Transfer of Equity/Interest

A partner may make a determination to dissolve the partnership by the way of the court if the other partner has transferred their interest or equity of the Partnership  Firm to a third party without asking or consulting them first.


In Indian Partnership Act, 1932 provisions by which a partnership firm can be dissolved inside the court or outside the court are given. The Basis on which dissolution of firm takes place is clearly stated in the Partnership Act. To Gather more information you can access The Partnership Act of India.Although the liabilities of the partners cease to exist once the firm is dissolved, the partners are liable for any act/occurrence prior to the dissolution of the firm. Only partners who are incapacitated, insolvent and dead are exempt from the liability.