Question

Under what circumstances partnership firm is dissolved?

Hint:

Sections 40-44 of the Indian Partnership Act, 1932 list agreement, compulsory, contingency, notice, and court grounds.

Answer 1

Step 1: Dissolution by agreement (Section 40):
A firm is dissolved when all the partners agree to dissolve it, or as per a contract already made between them.

Step 2: Compulsory dissolution (Section 41):
The firm is compulsorily dissolved if all partners, or all but one, become insolvent, or if the business becomes unlawful (e.g. trading with an enemy country in wartime).

Step 3: Dissolution on the happening of certain contingencies (Section 42):
This covers expiry of the fixed term for which the firm was formed, completion of the specific venture the firm was formed for, death of a partner, or a partner being declared insolvent — unless the partnership deed says the firm continues in such cases.

Step 4: Dissolution by notice (Section 43):
In a partnership at will, any partner can dissolve the firm by giving written notice to all other partners of their intention to dissolve.

Step 5: Dissolution by the Court (Section 44):
A court may order dissolution on grounds such as a partner's unsound mind, permanent incapacity, misconduct affecting the business, persistent breach of the partnership agreement, or when the business can only be carried on at a loss.

Final Answer:
A partnership firm is dissolved by mutual agreement, compulsorily (insolvency of partners/illegal business), on certain contingencies (expiry of term, completion of venture, death, insolvency of a partner), by notice (partnership at will), or by order of the court.