Business Accounting GA20203 Name: Mohd. Ruhail B. Asli Matrix No.

: BG10110266 Course: International Finance (HE19)

Dissolution of a partnership Dissolving a partnership is a significant decision that will affect both you and your partner/s. Generally a partnership can be dissolved if all partners agree to the decision, or in the following circumstances:

It has become illegal (e.g.: if a partner can no longer legally own a business); A partner gives written notice to the other partners; A court order requires the partnership to end; The life of the partnership has expired; or Any partner dies or becomes bankrupt.

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. Dissolution can occur because the partners have decided to go their own way, because a partnership set up for a fixed time has run its course or, more usually, because there is no partnership agreement and one of the partners wants to leave or other partners want to expel him or her. It will automatically occur where one partners dies or is made bankrupt where there is no partnership agreement. If dissolution occurs for whatever reason there are a number of issues relating to partnership law that must be considered. These include:

How are the assets divided up? Who is responsible for the liabilities? Who gets the name? What happens to Work in Progress (WIP)? Who gets the customer / client lists? What happens to the employees? Who prepares the final accounts? Who pays for Continuing Professional Indemnity Insurance (if applicable)

Business Accounting GA20203 Dissolution of firm Dissolution of a firm means the end of a firm by the break up o the relation of partnership between all the partners. Dissolution is to be distinguished from reconstitution of a firm. In the latter case, the partnership continues but there is a change in the number of partners. In the former case there is complete severance of jural relation between all the partners. Dissolution of a partnership firm merely involves a change in the relation of partners; whereas the dissolution of firm amounts to a complete closure of the business. 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. 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 the firm. Dissolution of a Partnership firm may be effected in the following ways:

Dissolution without the intervention of the Court. Dissolution by Court.

Dissolution of partnership vs. Dissolution of firm. Dissolution of partnership and Dissolution of firm are two different terms. Dissolution of partnership means termination of existing partnership agreement and the formation of a new agreement which can be due to any reason like admission of a new partner or death or retirement of an old partner. In the case of dissolution of partnership the remaining partners may agree to carry on the business under a new agreement. Whereas Dissolution of Partnership firm means that the firm is closing down its business. In the case of dissolution of firm the Assets of the business are sold, Liabilities are paid off and the accounts of the partners are settled out of the remaining amount. Thus this is clear from the above discussion that in the case of dissolution of the partnership the firm may continue under a new agreement whereas in the case of dissolution of partnership firm the business of the firm comes to an end.