Dissolution

of
Partnership
DISSOLUTION AND ITS
CONSEQUENCES

Modes and Procedures

Automatic Dissolution

Dissolution ! Notice

Dissolution ! Court Order

Conse"uences of
Dissolution
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Modes and Procedures
Dissolution of a partnership means bringing the partnership to an end.
When partners are changed/added/leaves, the relationship between
them change from the original form, thus, the partnership is
dissolved.
The business will come to a halt. However, certain activities may still
continue to allow for the firms business to be wound up.
There are several ways of dissolving a partnership under the Act.
AUTOMATIC DISSOLUTION
DISSOLUTION #$ %I&IN% O' NOTICE
DISSOLUTION #$ O(DE( O' T)E COU(T
The partnership articles itself ma! ascertain as to ho* or
*hat +rounds ma! cause a partnership to come to an end,
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AUTOMATIC DISSOLUTION
i, #$ E-PI(ATION O' TIME O( E&ENT
ii, #$ DEAT). #AN/(UPTC$ O( C)A(%E ON
PA(TNE(0S S)A(E
iii, #$ SUPE(&ENIN% ILLE%ALIT$
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1AUTOMATIC DISSOLUTION
i, #$ E-PI(ATION O' TIME O( E&ENT
S,23456 states
Subject to any agreement between the partners, a partnership is
dissolved:-
a)If entered into for a fixed term, by the expiration of that term
b)If entered into for a single adventure or underta!ing, by the
termination of that adventure or undertaking.
A partnership where the partners have agreed to be established for a
certain period would automatically dissolve when the period that they
have agreed upon have e!pired.
However, such partnership may still continue after the e!piration of
the agreed period. After the e7pir! period the partnership is
considered as a partnership at *ill. A partnership at will may
only be dissolved when at any time one of the partners give notice to
the other partners of his intention to dissolve the partnership.
Another dissolution that will automatically ta"e place is when the
partners establish partnerships for a certain event or enterprise
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ii, #$ DEAT). #AN/(UPTC$ O( C)A(%E ON PA(TNE(0S S)A(E
S, 28456
Subject to any agreement to the partners, every partnership is dissolved
as regards all the partners by the death or bankruptcy of any
partner.
Death or ban"ruptcy can automatically dissolve a partnership.
However, partners can agree for partnership to continue in spite of the
death and ban"ruptcy of a partner #the firm may still carry on with the
surviving partner or the personal representatives of the deceased
partner.$
S, 28496 provides
%" partnership may at the option of the other partners, be dissolved if
any partner suffers his share of the partnership property to be charged
under this "ct for his separate debt#$
This subsection gives a partner the choice whether to continue with
partnership or not when the other partner charges his share of the
partnership property as security for his own personal debt.
&y charging on the partnership property means that a partner uses his
potion of the partnership property as a security for a personal
loan'.amounts to putting partnership property at the ris" of the
possibility of allowing a stranger to ta"e over partners portion of
partnership property in the event such partner is not able to pay off his
loan. ( an act *hich is contrar! to the partnership a+reement
which does not allow third parties to be involved in the partnership
business.
1AUTOMATIC DISSOLUTION
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iii, #$ SUPE(&ENIN% ILLE%ALIT$
S,2: states that
" partnership is in every case dissolved by the happening of
any event which makes it unlawful for the business of
the firm to be carried on or for the members of the firm to
carry it on in partnership#$
A change in circumstances or status in law could ma"e it
unlawful for the valid business of a firm to be carried on or
for the members of the firm to carry on in partnership. e.g,
if a partner in a firm is from a country that has declared war
on our country, partner is considered enemy alien.
( ; /upfer )*+*,-*. /.&. 0.*1
The defendant was a partner in a firm with his two brothers. The partnership
business was carried out in 2ran"furt and 3ondon. The 2ran"furt branch placed an
order with a Dutch company in Holland, and payment was to be made by the
defendant from the 3ondon office. War bro"e out on 4
th
August *+*4. The
defendant paid the Dutch company when payment was due, and he was charged
with the offence of trading with the enemy under the Trading with the 5nemy Act
*+*4. 6ne of the issues which arose was whether the partnership had been
dissolved by the outbrea" of the war.
7t was held by the court, that the partnership was dissolved
as soon as war was declared.
1AUTOMATIC DISSOLUTION
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Dissolution ! Notice
S,234564c6 provides that a partnership is dissolved
If entered into for an undefined time, by any partner giving
notice to other or others of his intention to dissolve the
partnership#$
8artnership entered into for an undefined time is called a
partnership at *ill. 9nder when s,9<456 %here no fixed term
has been agreed upon for the duration of the partnership, any
partner may determine the partnership at any time on giving
notice of his intention to do so to all the other partners#$
Thus a partner who wishes to terminate a partnership has to give
notice to the other partners. The Act does not re:uire that the
notice be given in writing. However, s,9<496provides where a
partnership for an indefinite period was created by a written
document, then it is necessary that the notice of dissolution must
also be in writing and signed by the partner giving notice.
Su=hinder>it Sin+h Mu=er ; Arumu+am De;a (a>ah )*++;-.
<3= **>
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7f the notice is not written, it can be inferred from the conduct of
the partner, and is effective only against the other partners of the
firm, but not against the third parties dealing with the
partnership. 7t is sufficient where the other partners are informed
or it could be implied from the conduct of the partners. 7n the
case of
Tham /o= Cheon+ ? ors Lo* Pui )en+ @5A::B IMLC 89
A partnership of four persons ended with the sale of the firm to a
limited company. The fourth partner alleged that he had not been
given notice of the dissolution of the partnership. The other three
partners negotiations for the sale of the firm were not "nown to
him until the date of sale on ?
th
of April *+??.
The court held that the conduct of the other three partners in
selling the firm to the limited company must be considered as
showing their intention to dissolve the partnership. As the fourth
partner only "new of the sale on the ?
th
, the intention considered
as having been conveyed and ta"es effect from that date.
'Dissolution ! Notice
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The giving of notice must be made "nown to the party to whom
the notice is intended. 7n the case of Suramaniam Chettiar ;
/ader Mastan )*+04- @ol. 777 2<AB *41
The court decided that the notice of the intention to retire or
resign from the partnership must be communicated to the other
partners. The act of simply leaving the firm or the partner not
being active cannot be considered as notice of intention to retire.
Dissolution by notice is not allowed where there is an e!press
provision for the partnership to be dissolved in other ways, and
this was established clearly in the case of C,M,M, Le*is ? ors
D,E, #alasin+am )*+>4-*<3= *>.
Cotice once given cannot be withdrawn e!cept with the consent of
all the partners.
Dissolution ! Notice
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DISSOLUTION #$
O(DE( O' T)E COU(T

A court may order a partnership dissolved on application

by a partner under S,2E, The court has the power to
order dissolution of the partnership in cases of
a$ <ental Disorder1
b$ 8ermanent incapacity1
c$ Donduct preEudicial to the business1
d$ 8ersistent breaches of the partnership agreement1
e$ The partnership being carried on at a loss1
f$ The partnership being Eust and e:uitable1
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Mental Disorder
S, 2E4a6 $%hen a partner is found lunatic or is shown, to the
satisfaction of the court, to be of permanently unsound mind, in
either of which cases the application may be made as well by t hat
partner by his committee, or next friend, or person having title to
intervene as by any other partner#$
The mental incapacity of one partner allows the other partner to
apply to the court to have the partnership dissolved. A partner or
anyone who has the right can ma"e an application to have the
partnership dissolved under S,5A of the Mental )ealth Act
5A89.
A Eudge would consider all the medical evidence before him
e!ercising his powers. A person would be considered incapable of
managing his property and affairs where he suffers from a medical
disorder such as a mental illness, arrested or incomplete disorder
of the mind, psychopathic disorder and any other disorder or
disability of the mind. =ones v Coy )*;00-. <F/ *.,
When proceedings are pending in court for the dissolution of the
partnership, the court can grant an interlocutory inEunction to
restrain a partner who is mentally incapable from interfering with
the conduct of the partnership business.
1DISSOLUTION #$ O(DE( O' T)E COU(T
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1DISSOLUTION #$ O(DE( O' T)E COU(T
Permanent Incapacit!
S,2E46, the court may allow a partnership to be dissolved when a
partner ecomes permanentl! incapale of performin+ his part
of the partnership contract. This provision is for grounds other
than mental disorder, and covers a much wider area. The court would
loo" at all e!isting circumstances when considering an application by
a partner or all the other partners, before deciding whether a partner
is permanently incapacitated. The relevance of the incapacity will very
much depend on the nature of the partnership and the role of the
partner in the business.
Dhit*ell ; Arthur #*;?,$,, 5B ;4;,
The partners of a firm of pharmacists applied to the court to dissolve
the partnership on the grounds of permanent incapacity of their
partner. Their partner had suffered a stro"e that had left him
paralysed, leaving him unable to perform his duties in the business.
The court had not allowed dissolution at the time the application was
made because there had been evidence that the sic" partners
condition was improving.
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Conduct Pre>udicial to the Partnership #usiness
S, 2E4c6 the court may order dissolution
%hen a partner& has been guilty of such conduct as, in the opinion of
the court, regard being had to the nature of the business, is calculated
to affect prejudicially the carrying on of the business#$
8reEudicial conduct is that which is directly or indirectly related to the
partnership business. A
Aimply bad behavior, not directly or indirectly related to the partnership
business, then the court may not consider the application to dissolve the
partnership.
Sno* ; Milford )*;?;- *? W.B. ?,4, adulterous affair of a partner in a
ban"ing business not considered as conduct preEudicial to the business.
8reEudicial conduct would be related to the financial position or would
affect ban"s credibility.
Essel ; )a!*ard )*;?G- 0G &eav. *,;1
A solicitor who was entrusted with a clients money had used the money
for his personal needs.
The court held that such behavior amounts to preEudicial behavior as it
affects the credibility of the firm.

1DISSOLUTION #$ O(DE( O' T)E COU(T
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Honesty is an important element in a business relationship,
and dishonest! can e considered a pre>udicial conduct.
Carmichael ; E;ans )*+G4- * Dh. 4;?
Darmichael and 5vans were partners. Darmichael was
convicted of travelling on a train without a tic"et with the
intention to defraud and so 5vans applied to have the
partnership dissolved based on this.
The court held that as the conviction was for dishonesty. As
honesty was an important element in a business, Darmichaels
conviction for dishonesty was calculated to be detrimental to
the partnership business.
1DISSOLUTION #$ O(DE( O' T)E COU(T
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Persistent #reaches
S,2E4d6 states that dissolution can be ordered by the court
%%hen a partner& willfully or persistently commits a breach of the
partnership agreement otherwise so conducts himself in matters so
relating to the partnership business that is reasonably practicable
for the other partner or partners to carry on the business in
partnership with him#$
When a partner persistently breaches the partnership agreement, it
affects the faith and confidence among the partners, and as such
the partnership cannot continue to e!ist. The court need to be
satisfied that the acts of a partner are such that it destro!s the
mutual confidence that is necessar! to carr! on a partnership
business. 7n the case of
Cheeseman ; Price #*+;?,$ 0, &eav. *4.
A partner persistently made mista"es in boo" "eeping and did not
"eep a regular record of the money he had received from their
customers. The court held that such behavior can allow the
partnership to be dissolved.
1DISSOLUTION #$ O(DE( O' T)E COU(T
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Differences between partners cannot be considered to be sufficient
ground to see" to have the partnership dissolved. &ehavior that can
be considered as breaches, ma"ing it impossible for partnership to
carry on, depends on the ethics of the profession involved. 7n the
case of
C,M,M, Le*is ? ors ; D,E, #alasin+am #supra$
6ne of the grounds of dissolution was that the defendant, a partner
of the legal firm, had been consistently absent from the office. This
made it impossible for the partnership to continue with him.
The court referred to the Advocates and Aolicitors 6rdinance *+4>
and came to the conclusion that the defendants behavior was not
e!cessive.

1DISSOLUTION #$ O(DE( O' T)E COU(T
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Carr!in+ on #usiness at a loss
The definition of a partnership stresses upon the fact that a
partnership e!ist for the purpose of ma"ing profit. Thus where it is
impossible for a partnership business to ma"e a profit, and
continuing the business would incur further losses, then any one
of the partners can apply to the court to have the partnership
dissolved. The words Hcan only be carried on at a loss must mean
there must be practicale impossiilit! of ma=in+ profit.
)and!side ; Campell )*+G*- *> T3B ?.0
The plaintiff applied to the court to have the partnership dissolved
on the grounds that the business would continue ma"ing losses
only. The other partners admitted that the firm had been suffering
losses, but it was because partly due to poor management by the
plaintiff, and also due to the fact that the plaintiff had been absent
for a long time due to illness. They were of the opinion that if
proper attention was given, it would be possible for the business
to recover and ma"e profits.
The court held as such it would not allow the firm to be dissolved.
1DISSOLUTION #$ O(DE( O' T)E COU(T
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Cust and E"uitale %rounds
S, 2E4f6 the courts has a very wide discretion to dissolve partnerships
as the ground is not specified as in the earlier provisions.
Any partner may apply, but the court ma! refuse to consider
the application of a partner *ho ma! e at fault. Where both
parties are at fault, the court may allow the application on Eust and
e:uitable grounds.
The grounds applicable here is nonFe7hausti;e. 7t can be any
situation such as where the partnership has reached a deadloc", or
the complete brea"down of communications between partners.
Mere differences et*een partners *ould not e +rounds to
have a partnership dissolved. The partner would have to show to
the court that it is no longer possible for the partners to have
confidence in each other, which they have a right to e!pect from
each other.
(e $enid>e Toacco Co, Ltd, )*+*?- . Dh. 4.?
Although the partnerships business was thriving, the relationship
of the partners had come to a standstill. They only communicated
through the secretary of the firm. The court ordered the
dissolution of the firm on Eust and e:uitable ground.
1DISSOLUTION #$ O(DE( O' T)E COU(T
19
Erahimi ; Destourne %alleries #*+>0$AD 0?G
5brahimi and CaIar had formed a company agreeing to
share e:ually in the management and profits. 3ater CaIars
son was given shares by both men and made a director of
the company. The company was profitable, but later
5brahimi was removed as a director at a meeting by CaIar
and his son after he and CaIar came to some
disagreements. He applied to the courts to wind the
company up.
The House of 3ords held that as the company was H:uasi
partnership in nature, it would be Eust and e:uitable to
dissolve the business. The matters that arose was of Ha
personal character arising between one individual and
another, which may ma"e it unEust or ine:uitable to insist
on legal rights'
1DISSOLUTION #$ O(DE( O' T)E COU(T
20
5ven after a firm has been dissolved there are certain
conse:uences

A partner is entitled to notify the public to inform them that the

partnership has been dissolved.

The authority of partners still continues to a limited e!tent to

enable them to wind up the firms business.

The partners are allowed to apply the partnership property for the
payment of the firms debts and liabilities.

Where one partner has paid a premium to enter into a partnership

that has been prematurely dissolved, he would be entitled to the
repayment of the premium in whole or in part if he is not fault.
Conse"uences of Dissolution
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