Dissolve a Partnership Firm

How to Dissolve a Partnership Firm?

Partnership firm is the business entity that is formed with a sole purpose of profit from business. Two or more parties come together with a formal agreement (known as Partnership Deed) to own and manage the business. Once the purpose is met or after the partners decide to put in end to the partnership it needs to be dissolved and the partnership comes to an end. On dissolution of the firm, the business of the firm ceases to exist since its affairs are would up by selling the assets and by paying the liabilities and discharging the claims of the partners. The dissolution of partnership among all partners of a firm is called dissolution of partnership firm. This is usually done through a dissolution agreement between the partners.

₹ 898 All Inclusive

Methods of dissolution of a partnership firm in India

Dissolution with intervention of the court

When a dissolution is initiated by one partner by suing the other then the courts get involved. But a court can dissolve the firm only if it is registered with the registrar of firms. Hence an unregistered partnership firm can’t be dissolved by the court. The court may intervene and help in the dissolution in situations where one partner becomes incapable to carry out his duties due to incapability, or unsoundness of mind, if a partner is guilty of misconduct that can harm the business, repeated breach of the partnership agreement by a partner. In these situations the court may get involved and help the partnership get dissolved legally.

Dissolution without courts intervention

Usually, partnership firms are dissolved through dissolution agreements between the concerned partners. All the partners come together and sign an agreement confirming such a dissolution and mutually settling all the pending liabilities and accounts among them. Hence there is no need of any third party intervention. This may occur for various reasons like insolvency of partner/partners, or Unlawful business carried on in the name of the partnership firm by one of the partner. In case the term of the decided partnership expires or the task for which the partnership was created is finished, Death of one of the partners and resignation of a partner. It can also be dissolved by a notice of dissolution sent by one partner in written to all other partners.

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Documents Required for Winding up of Partnership Firm

PAN Card All partners are required to submit their and the firms PAN number as identity proof.
Address Proof of firm If the registered office place is rented, rent agreement and one utility bill (electricity bill, water bill, property tax bill, gas receipt etc.) have to be submitted. Also, NOC from landlord will be submitted.
Accounting Information The financial statement of the partnership firm
Legal Liabilities A statement regarding pending litigation, if any involving the partnership firm
List of secured creditors Original partnership deed and all its modified versions
Address Proof of firm If the registered office place is rented, rent agreement and one utility bill (electricity bill, water bill, property tax bill, gas receipt etc.) have to be submitted. Also, NOC from landlord will be submitted.

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Consultation on Dissolving Partnership
Provide details & documents required Dissolving Partnership
Drafting of dissolution deed
Drafting of Affidavit and Indemnity bond
Filing of application to Strike-off partnership
Your Partnership is dissolved
All it takes 18 – 20 days*
*Subjected to Government Processing Time

The Process of Dissolve a Partnership Firm

Day 1- 2
Consultation on Dissolution of Partnership
Collection of Information
Collection of Required Documents (Scanned Copies)
Review of Documents and Information provided
Day 3 – 9
Drafting of dissolution agreement
Drafting of Affidavit, indemnity bond and other documents
Sending the documents to get signed from applicants
Receipt of signed documents from applicants
Day 10 – 12
Execution of dissolution agreement
Filing of application for dissolution
Day 13 – 20
Government processing time
Your partnership is dissolved*
*Subjected to Government Processing Time.

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FAQ

What does the dissolution deed of a partnership firm cover?

The dissolution deed would cover:

The date on which the partnership will cease trading and be dissolved and how it will be wound up.
What the partners can and cannot do from the date of dissolution until the partnership is wound up.
The return of documents, the realization of the partnership’s assets and the termination of contracts and other arrangements for the discharge of the partnership’s liabilities.
The preparation and approval of the partnership’s final set of accounts.
The distribution of any partnership monies after the liabilities has been discharged.
The retention of records
The notification of the dissolution

What is the difference between the dissolution date and the winding up date?

When the partnership ceases to exist, that date is known as the dissolution date . after this there is no business relationship between the partners. After which the partners will complete any unfinished work, settle any liabilities, realize any partnership assets and otherwise wind up the partnership. The winding update is the date when the winding-up of the partnership is completed.

How are accounts settled for winding up of the partnership?

First, the Losses of the firm will be paid out. The Assets of the firm and the capital contributed by the partners to set-off losses of the firm will be applied :

Third party debts will be paid first. Next, loan amount taken by a firm from any partner will be repaid to that partner

Capital contributed by each partner will be repaid to him in the capital contribution ratio. Balance amount will be shared among the partners in their profit sharing ratios. Upon realization, all assets will be sold off in the market, and the cash realizing out of such a sale will be used for paying the liabilities. Assets or liabilities may also be taken over by the partner(s) for which the respective partner capital accounts will be adjusted by such amount.

What are the Liabilities of partners after dissolution?

The partners are liable to the third parties for any act done before the dissolution. The liability of a partner finishes when all the event is finished that has been taken up before the dissolution of the firm until public notice is given of the dissolution.

Which are the contingencies due or which a partnership needs to be dissolved?

If the partnership was created for a fixed term, then on the expiration of the term the partnership will be dissolved.
If the partnership has been created for a particular task or objective, then after the completion of that task or fulfillment of that objective the partnership would come to an end.
If one of the partners dies than it’s prima facie that the partnership would come to an end unless it is provided otherwise in the agreement either express or implied from the conduct of the partners.

What are the rights of partners post dissolution?

Every partner is entitled to equal rights or according to the contract. All the partners are entitled to the property of the firm applied in payment of the debts and liabilities of the firm and to have the surplus distributed among the partners or their representatives according to their rights. These rights are given when winding up of the firm is taking place

What is the difference between dissolution of partnership firm and dissolution of partnership?

Dissolution of a partnership occurs when a partner ceases to be associated with the business, whereas dissolution of a firm is the winding up the business.