In one line
Dissolution of a firm ends the partnership among all partners, but authority and liability continue so far as necessary for winding up.
After this note, you should be able to
- Distinguish reconstitution from dissolution of the firm.
- Classify the correct statutory mode of dissolution.
- Apply public notice and the Section 48 account sequence.
Modes of dissolution
Sections 40 to 44 provide routes by agreement, event, notice and court order.
- Agreement
- All partners may dissolve the firm under Section 40.
- Compulsory dissolution
- Section 41 applies where all or all but one partner become insolvent, or the business becomes unlawful.
- Contingencies
- Subject to contract, expiry, completion, death or insolvency can dissolve the firm under Section 42.
- Notice at will
- Any partner may dissolve a partnership at will by written notice under Section 43.
- Court order
- Section 44 covers incapacity, misconduct, persistent breach, transfer of interest, business at a loss and just and equitable grounds.
Consequences and accounts
Dissolution is followed by notice, realization of assets and settlement.
- Public notice
- Partners remain liable for later apparent firm acts until public notice, subject to Section 45 exceptions.
- Winding-up authority
- Authority continues only to complete unfinished transactions and wind up the firm.
- Losses
- Under Section 48, losses are paid first from profits, then capital and finally by partners in their profit-sharing proportions.
- Assets
- Firm assets pay third-party debts, partner advances, partner capital and then any residue in profit-sharing proportions.
- Goodwill
- Goodwill forms part of firm assets and may be sold, with reasonable post-sale restrictions permitted by Section 55.
Work through the facts
Illustration
Facts
A partnership at will has three partners. A gives written notice to the others fixing 30 June as the dissolution date, but no public notice follows.
Likely result
The firm dissolves on the date stated under Section 43, but partners may remain exposed to third parties for apparent later firm acts until effective public notice.
What to learn
Internal dissolution and external liability do not end at exactly the same step.
Cases with a purpose
Landmark judgments
Learn the rule and where to use it. A case name without its legal function adds little to an answer.
Garner v. Murray
Further reading[1904] 1 Ch 57
Principle: In the absence of agreement, a capital deficiency caused by an insolvent partner is borne by solvent partners according to capital proportions under the traditional rule.
Use in an answer: Use it carefully in dissolution accounts after first applying the partnership deed and Section 48.
V.H. Patel & Co. v. Hirubhai Himabhai Patel
Further reading(2000) 4 SCC 368
Principle: Disputes concerning dissolution and accounts may be resolved through arbitration where the agreement and dispute are legally arbitrable.
Use in an answer: Use it where a dissolution problem also raises the agreed forum for settling accounts.
For a 10-mark answer
Answer structure
- Distinguish dissolution of firm from a change in partners.
- Identify the statutory mode and effective date.
- Apply public notice and winding-up authority.
- Settle losses and assets in Section 48 order.
Common mistakes
- Calling every retirement dissolution of the firm.
- Ignoring public notice and later third-party liability.
- Distributing capital before paying external debts.
Before you close the tab
Quick revision
- Section 39 concerns dissolution among all partners.
- A partnership at will can end by written notice.
- Authority continues for winding up.
- Section 48 fixes the account sequence.
- Goodwill is a firm asset.
Test yourself
- How does reconstitution differ from dissolution?
- What is the Section 48 payment order?
- Why is public notice still needed?
Short answers
Frequently asked questions
Does one partner leaving always dissolve the firm?
No. The firm may be reconstituted under the agreement and statute. Dissolution of the firm ends partnership among all partners.
What is paid first from firm assets?
Third-party debts are paid before partner advances, partner capital and distribution of any residue.
Primary sources
This is an educational study note. Read the bare provision and full judgment before relying on a proposition in research or practice.