How to dissolve a partner from partnership firm?

To explain the dissolution of partnership, let us take a simple citation. Suppose, Jack and Mack were two best friends. They started a business in partnership about 15 years ago. They were earning smart profits and were successful in their endeavor. People were quite jealous from their success, as a result some poor wisher incorporated a seed of misunderstanding between them. Eventually they closed down their business. This is very common that due to small misunderstandings partners dissolve their partnerships and sometimes they dissolve the entire business also.

The dissolution
The dissolution simply means termination or discontinuation. Here it is important to mention that dissolution of firm and dissolution of partnership are two different things. Dissolution of firm means shutting down of business and complete termination of relationships between all partners of the firm. On the other hand, dissolution of partnership means a change in the inter-relationship of two or more partners but the firm retains its identity and continues to be in the business. In later case, partnership would definitely reach to an end but the reconstituted firm may stay operational with the same name.

It’s important to understand that if all partners of a firm decide to end relationships with each other then it is a situation of dissolution of firm, but if 9 partners of a firm decide to end relationship with 1 or 2 partners of the firm then it is a situation of dissolution of partnership and not the firm. The firm will be restructured and reconstituted according the partnership decisions of new partners.

So, we can say that dissolution of firm surely means termination or dissolution of partnership but the dissolution of partnership doesn’t necessarily means termination or dissolution of firm.

A Firm leads to dissolution under following instances-

Dissolution by the agreement– A firm will see dissolution if all the partners agree to end their relationships or if partnership contract reach to its retirement.

Compulsory dissolution of firm– A firm will see compulsory dissolution under following instances:
1. When all partners of the firm excluding one partner become insolvent.
2. When firm breaks the business law of nation.
3. When all partners excluding one partner decide to have retirement from the work.
4. When all partners excluding one partner or all partners die.

Dissolution by law or court– Any concerned court of the country can also order to dissolve a firm under following instances:
1. When partners lose their mental health.
2. When firm breaks the business law of nation.
3. When partners of the firm intentionally and repetitively break the agreements with suppliers, vendors, customers etc.
4. When firm is getting illegal benefits from some unknown source of income.
5. When firm is involved in restricted activities of import and export.
Many other cases also lead to the dissolution of entire firm. Even while dissolution of partnership, set up of the firm experience impulsive disturbances that ultimately put adverse effects on the business.

How to dissolve a partner
There are many ways to dissolute a partner from the firm. When all partners of the firm decide to end the relationships with 1 or more partners of the firm then they can simply go for the valuation of the concerned partner and then paying him/her according to his/her share in the organization. This payment can be in form of fixed assets or current assets. After the accepting the evaluated share, the dissolved partner looses all of his/her voting rights in the company.

Category: Business, Business & Finance

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