Semester autumn 2011 Business and labor law (824) MBA HRM

Dissolution of partnership and settlement of accounts on dissolution

Contents
Introduction Partnership Dissolution of partnership Settlement of accounts on dissolution Practical study PEPCO Dissolution of partnership And settlement of accounts on dissolution of PEPCO

Introduction
Partnership
A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business. A partnership must file an annual information return to report the income, deductions, gains, losses, etc., from its operations, but it does not pay income tax. Instead, it "passes through" any profits or losses to its partners. Each partner includes his or her share of the partnership's income or loss on his or her tax return.

Dissolution of partnership
When the relation between all the partners of the firm comes to an end, this is called dissolution of the firm. Dissolution of partnership is different from the dissolution of firm. When any of the partners dies, retires or become insolvent but if the remaining partners still agree to continue the business of the partnership firm, then it is dissolution of partnership not the dissolution of firm. Dissolution of partnership changes the mutual relations of the partners. But in case of dissolution of firm, all the relations and the business of the firm comes to an end. The dissolution of partnership between all the partners of a firm is called the dissolution of the firm". Dissolution by agreement Dissolution by agreement. A firm may be dissolved with the consent of all the partners or in accordance with a contract between the partners.

Modes of Dissolution A firm may be dissolved in any of the following ways:1. By Consent:- A partnership firm can be dissolved any time with the consent of all the partners whether the partnership is at will or for a fixed duration. 2. By Agreement:- A partnership can be dissolved in accordance with the terms of the Partnership Deed or of the separate agreement. 3. Compulsory Dissolution:- In case, any of the following events take place then it becomes compulsory for the firm to dissolute: (i) Insolvency of Partners:- In case all the partners or all the partners except one become insolvent. (ii) Unlawful Business:- In case the firms business become unlawful on the happening of a subsequent event. e.g. trading with alien country. 4. Dissolution on the happening of contingent event:- A firm may be dissolved on the happening of any of the following contingent event:(i) Expiry of Fixed Period:- If the firm is constituted for fixed period, then the firm is dissolves automatically. (ii) On achievement of specific task:- If the firm has been constituted for the achievement of specific task, on achievement of that task, firm ceases to exist. (iii) Death of Partner:- Death of any of the partner dissolves the partnership. (iv) Insolvency of Partner:- The insolvency of any of the partner may dissolve the firm. (v) Resignation of Partner:- Resignation by any of the partners dissolves the partnership. 5. Dissolution By Notice:- In case of partnership at will, a partner can dissolve it by giving written notice of dissolution to other partners duly signed by him.

6. Dissolution by Court:- The court may order for the dissolution of the firm on the following grounds:(i) Insanity of Partner:- On the application of any of the partner, court may order for the dissolution of the firm if a partner has become of an unsound mind. (ii) Incapacity of Partner:- If a partner has become permanent in capable of discharging his duties and obligations then court may order for the dissolution of firm on the application of any of the partner. (iii) Misconduct of Partner:- If any partner other than partner suing is responsible for any loss to the firm, then the court may order for the dissolution of the firm. (iv) Constant breach of agreement by partner:- The court may order for the dissolution of the firm if the partner other than the suing partner is found guilty for constant breach of agreement and it becomes impossible to continue the business with such partner. (v) Transfer of Interest:- When any of the partner other than the suing partner transfers whole of its share to the third party for permanently. (vi) Continuous Losses:- The court may order for dissolution if the firm is continuously suffering losses and there is no more capital available for the future growth of the firm. (vii) Just and Equitable:- The court may order for dissolution on any other ground which court think is just, fair and equitable. e.g. loss of total confidence between the partners.

Subject to agreement by the partners be observed:

(a) Losses, including deficiencies of capital, shall be paid first out of profits, next out of capital, and, lastly, if necessary, by the partners individually in the proportions in which they were entitled to share profits; (b) The assets of the firm, including any sums contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and order: (i) In paying the debts of the firm to third parties; (ii) In paying to each partner ratably what is due to him from the firm for advances as distinguished from capital; (iii) in paying to each partner ratably what is due to him on account of capital; and (iv) The residue, if any, shall be divided among the partners in the proportions in which they were entitled to share profits.

Dissolution by the Court

.Dissolution by the Court. At the suit of a partner, the Court may dissolve a firm on any of the following grounds, namely:(a) that a partner has become of unsound mind, in which case the suit may be brought as well by the next friend of the partner who has become of unsound mind as by any other partner; (b) that a partner, other than the partner suing, has become in any way permanently incapable of performing his duties as partner ; (c) that a partner, other than the partner suing, is guilty of conduct which is likely to affect prejudicially the. Carrying on of the business, regard being had to the nature of the business; (d) that a partner, other than the partner suing, willfully or persistently commits breach of agreements relating to the management of the affairs of the firm or the conduct of its business, or otherwise so conducts himself in matters relating to the business that it is not reasonably practicable for the other partners to carry on the business in partnership with him; (e) that a partner, other than the partner suing, has in any way transferred the whole of his interest in the firm to a third party, or has allowed his share to be charged under the provisions of rule 49 of Order XXI of the First Schedule to the Code of Civil Procedure, 1908,(5 of 1908). or has allowed it to be sold in the recovery of arrears of land- revenue or of any dues recoverable as arrears of land revenue due by the partner ; (f) that the business of the firm cannot be carried on save at a loss ; or (g) on any other ground which renders it just and equitable that the firm should be dissolved.

Liability for acts of partners done after dissolution. Liability for acts of partners done after dissolution. Notwithstanding the dissolution of a firm, the partners continue to be liable as such to third parties for any act done by any of them which would have been an act of the firm if done before the dissolution, until public notice is given of the dissolution: Provided that the estate of a partner who dies, or who is adjudicated an insolvent, or of a partner who, not having been known to the person dealing with the firm to be a partner, retires from the firm, is not liable under this section for acts done after the date on which he ceases to be a partner (1) Notices under sub-section (2) May be given by any partner. Right of partners to have business wound up after dissolution. Right of partners to have business wound up after dissolution. On the dissolution of a firm every partner or his representative is entitled, as against all the other partners or their representatives, to have 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. Continuing authority of partners for purposes of winding up. Continuing authority of partners for purposes of winding up. After the dissolution of a firm the authority of each partner to bind the firm, and the other mutual rights and obligations of the. partners, continue notwithstanding the dissolution, so far as may be necessary to wind up the affairs of the firm and to complete transactions begun but unfinished at the time of the dissolution, but not otherwise : Provided that the firm is in no case bound by the acts of a partner who has been adjudicated insolvent ; but this proviso does not affect the liability of any person who has after the adjudication represented himself or knowingly permitted himself to be represented as a partner of the insolvent. Mode of settlement of accounts between partners. .Mode of settlement of accounts between partners. In settling the accounts of a firm after dissolution, the following rules shall, subject to agreement by the partners, be observed: -

(a) Losses, including deficiencies of capital, shall be paid first out of profits, next out of capital, and, lastly, if necessary, by the partners individually in the proportions in which they were entitled to share profits. (b) The assets of the firm, including any sums contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and order:(i) in paying the debts of the firm to third parties (ii) in paying to each partner ratably what is due to him from the firm for advances as distinguished from capital ; (iii) in paying to each partner ratably what is due to him on account of capital ; and (iv) the residue, if any, shall be divided among the partners in the proportions in which they were entitled to share profits. Payment of firm debts and of separate debts. .Payment of firm debts and of separate debts. Where there are joint debts due from the firm, and also separate debts due from any partner, the property of the firm shall be applied in the first instance in payment of the debts of the firm, and, if there is any surplus, then the share of each partner shall be applied in payment of his separate debts or paid to him. The separate property of any partner shall be applied first in the payment of his separate debts, and the surplus (if any) in the payment of the debts of the firm. Personal profits earned after dissolution. 1-Personal profits earned after dissolution. Subject to contract between the partners, the provisions of clause (a) of section 16 shall apply to transactions by any surviving

2-partner or by the representatives of a deceased partner, undertaken after the firm is dissolved on account of the death of a partner and before its affairs have been completely wound up : 3-Provided that where any partner or his representative has bought the goodwill of the firm, nothing in this section shall affect his right to use the firm name. .Return of premium on premature dissolution. Return of premium on premature dissolution. Where a partner has paid a premium on entering into partnership for a fixed term, and the firm is dissolved before the expiration of that term otherwise than by the death of a partner, he shall be entitled to repayment of the premium or of such part thereof as may be reasonable, regard being had to the terms upon which he became a partner and to the length of time during which he was a partner, unless(a) the dissolution is mainly due to his own misconduct, or (b) the dissolution is in pursuance of an agreement containing no provision for the return of the premium or any part of it. At the time of dissolution of the partnership the main question that arises is the settlement of accounts of the various parties like creditors, bank loans, partners' loans, partners' capital accounts. This issue has been dealt in detail by the section 48, 49 and 55 of the Partnership Act. The account of all these parties will be settled as under: 1) If there is any Loss or Deficiency of capital it would be first paid out of the profits of the firm and then out of the Capital of the partners and if still any balance remains it would be realised from the Partners privately in their profit sharing ratio.

2) The amount realised from the sale of the assets of the firm, debtors and the amount contributed by the partners if any would be applied in the following manner: a) Outside liabilities would be paid first which includes Creditors, Bills payables, Outstanding expenses, Bank Loans or outsiders' Loans (including the loans provided by the relatives of the partners), Employees Compensations or provident funds etc. b) Thereafter the Loans advanced by Partners to the firm will be paid off. c) Thirdly the Partners' Capital accounts will be settled. d) The balance left if any will be distributed among the partners in their profit sharing ratio. The accounts of affirm on dissolution must be settled according to the following rules: Losses suffered by the firm shall be paid- first out of profits, next, out of capital, and lastly, if necessary by the partners individually in the proportion in which they were entitled to share profits. The assets of the firm, including the contributions of the partners are to be distributed in the following order: In paying the debts due to third parties; In paying the partners rateably advance made by them as distinguished from their contributions towards the capital; In paying the partners rateably what is due to them on account of capital. If there is any surplus, it shall be divided between the partners in the proportion in which they were entitled to share profits. We may also describe the above statement as follows. External debts shall be paid out of assets of the firm first and if any surplus is left the same shall be utilized for repayment of loans advanced by the partners and next the residue shall be applied among the partners for the repayment of capitals and if still the surplus is left it shall be distributed among partners as profit in their profit sharing ratio. However, in case of deficiency the deficiency of the insolvent partner is borne by the solvent partners in the ratio of their fixed capitals.

Settlement of accounts and contributions among partners

1. In winding up a partnership's business, the assets of the partnership, including the Contributions of the partners required by this section, must be applied to discharge its Obligations to creditors, including, to the extent permitted by law, partners who are Creditors. Any surplus must be applied to pay in cash the net amount distributable to Partners in accordance with their right to distributions under subsection 2. 2. Each partner is entitled to a settlement of all partnership accounts upon winding up the partnership business. In settling accounts among the partners, the profits and losses that result from the liquidation of the partnership assets must be credited and charged to the partners' accounts. The partnership shall make a distribution to a partner in an amount equal to any excess of the credits over the charges in the partner's account. A partner shall contribute to the partnership an amount equal to any excess of th charges over the credits in the partner's account.

3. If a partner fails to contribute, all of the other partners shall contribute, in the proportions in which those partners share partnership losses, the additional amount necessary to satisfy the partnership obligations. A partner or partner's legal representative may recover from the other partners any contributions the partner makes to the extent the amount contributed exceeds that partner's share of the partnership obligations. 4. After the settlement of accounts, each partner shall contribute, in the proportion in which the partner shares partnership losses, the amount necessary to satisfy partnership obligations that were not known at the time of the settlement. 5. The estate of a deceased partner is liable for the partner's obligation to contribute to the partnership. 6. An assignee for the benefit of creditors of a partnership or a partner, or a person appointed by a court to represent creditors of a partnership or a partner, may enforce a partner's obligation to contribute to the partnership. In settling the accounts of a firm after dissolution, the following rules shall,

Practical study

Pakistan Electric Power Company (PEPCO)

Introduction
The Pakistan Electric Power Company (Private) Limited (PEPCO) has been entrusted the task of managing the transition of WAPDA from a bureaucratic structure to a corporate, commercially viable and productive entity. It is a mammoth task and progress in the initial months was rather slow, but one should keep in mind that responsibility is enormous and transition is a long drawn process.. De-regulation of power sector Promotion of IPPs Restructuring of WAPDA Privatization of select corporate entities The factors responsible for the shift in policies were: generation capacity could not be increased to meet demand, WAPDA's growth caused inefficiencies, 'demand suppression' and high tariff policy, proliferated theft. All these factors, over the years, adversely affected WAPDA's financial condition. As part of this programme WAPDA's functions under its Water Wing and Power Wing were to be segregated. It was previously envisaged that all power generation, Hyde as well as thermal, would be corporatized. However, later on it was decided that the Hyde generation should remain part of the Water Wing or the remaining WAPDA. PEPCO has prepared the conceptual framework and is following a comprehensive strategy whereby WAPDA's vertical-monolithic Power Wing has been restructured into twelve (12) distinct autonomous entities under Companies Ordinance 1984.Three generation companies: 1. Southern Generation Power Company Limited (GENCO-1) head quarter at Jamshoro district Dadu near Hyderabad Sindh. 2. Central Power Generation Company Limited (GENCO-2) head quarter at Guddu district Jacobabad Sindh. 3. Northern Power Generation Company Limited (GENCO-3) head quarters at WAPDA House Lahore

To make Pakistan Power Sector customer friendly, efficient, able and responsive in meeting tee electric energy requirements of industry, business and domestic customers, and move to an energy sufficient model from the current energy deficient scenario, on commercially viable and sustainable basis.

To fully enable the reform and restructuring of the Pakistan Power Sector and to transform the fourteen (14) corporate entities (CE's) into autonomous and commercially viable enterprises, thru induction of effective corporate management, best business and utility practices.

Objectives
Pakistan Electric Power Company (PEPCO) unveiled new face of Pakistan's power sector with the crisis management objectives to improve the efficiency of the power sector and to meet customers' electric energy requirements on a sustainable and environment friendly basis. Stop load shedding, Constructing new grid stations, Reducing line losses; minimizing tripping and theft control

Performance Review
Job Analysis can be used in performance review to identify or develop: goals and objectives performance standards evaluation criteria length of probationary periods duties to be evaluated

Methods of Job Analysis

Several methods exist that may be used individually or in combination. These include: review of job classification systems incumbent interviews supervisor interviews expert panels structured questionnaires task inventories check lists open-ended questionnaires observation incumbent work logs

Dissolution of partnership PEPCO

Wapda Friday October 2010 dissolved its loss-making main electric power company as part of energy reforms, the water and power minister said. PEPCO (Pakistan Electric Power Company) was losing billions of rupees a year, Raja Pervaiz Ashraf, told reporters in Islamabad in remarks broadcast live on television. The dissolution of the 18-year-old company clears the way for the restoration of the currently suspended $11.3 billion IMF bailout programme. PEPCO was formed to mainly to oversee and administer 14 companies, which include 8 power distribution companies. With PEPCO's demise, the government aims to make the 14 companies independent to help them eventually recover from losses, analysts and officials said. While the move may be a step towards energy reforms and restructuring, the decision in itself will not have serious financial implications in the short term, analysts said. The International Monetary Fund said last week Pakistan was spending about $2 billion a year to subsidies electricity and it was important to reform the power sector. Despite the subsidies, the country suffers from chronic energy shortages and power cuts. "PEPCO was not serving its purpose as a holding company, so it's better that it's been dissolved," said Khalid Iqbal Siddiqui, director at Invest and Finance Securities Ltd.