As per Section 40 of Indian Partnership Act 1932 a Partnership firm can be dissolved by way of Dissolution by agreement. A firm may be dissolved with the consent of all the partners or in accordance with a contract between the partners. The remaining partners can carry on the business on the basis of agreement made between the partners. In such circumstances the assets and liabilities of the Partnership may be taken over by one or more partners and the surplus will be divided as per latest balance sheet made at the time of dissolution of Partnership.
Sample Format of Deed of Dissolution of Partnership in which one Partner takes over assets and liabilities is given below.
PARTNERSHIP DISSOLUTION DEED
This Deed made at ____________________ this ________ day of _____, 20__,
Mr. ____________________, son of Sh. ____________________ resident of ____________________ ____________________ _________________ hereinafter referred to as retiring partner, of the ONE PART
Mr. ____________________, son of ____________________ resident of ____________________ hereinafter referred to as continuing partner of the OTHER PART.
Whereas the parties hereto were doing the business of ____________________ at
____________________ under the name and style of M/s. ____________________ in terms of Deed of Partnership dated ____________________
And Whereas on account of disputes and differences arising between them, the parties have decided to dissolve the partnership on the terms and conditions hereinafter appearing.
WITNESSETH AS FOLLOWS:
1. The parties hereto hereby dissolve the partnership subsisting between them
the Deed of Partnership dated ____________________ with effect from ____________________
2. The assets and liabilities of the partnership have been assessed and the final balance sheet and profit and loss account have been taken and both the parties have seen the said accounts and are satisfied about its correctness.
3. The continuing partner has paid to the retiring partner a sum of Rs. ____________________ (the receipt whereof the retiring partner hereby acknowledges) as consideration of the share and interest of the retiring partner in the assets, stock-in-trade, goodwill and tenancy rights of the firm.
4. The retiring partner as beneficial owner hereby assigns and releases unto the continuing partner ALL THAT the one-half share and interest of and in the business and stock-in-trade, assets and other personal chattels including the goodwill thereof TO HOLD the same unto the continuing partner absolutely for ever.
5. The continuing partner hereby covenants with the retiring partner that he shall discharge all the debts, liabilities and obligations of the partnership and will at all times hereafter keep the retiring partner indemnified against the said debts, liabilities and obligations and from all actions, proceedings, costs, claims and demands in respect thereof.
6. The retiring partner hereby covenants with the continuing partner that he shall not engage himself directly or indirectly in the business of ____________________ for a period of ____________________ years from the date of dissolution of the partnership.
7. The retiring partner hereby releases the continuing partner and the continuing partner hereby releases the retiring partner from all actions, accounts, claims and demands in relation to the said partnership and from all the covenants and agreements contained in the said Deed of Partnership.
8. The continuing partner hereby agrees and undertakes that he shall notify the dissolution of the partnership to the Registrar of Firms ____________________ and also in the ____________________ Government Gazette and in two newspapers within ____________________ days from the date of execution hereof.
IN WITNESS WHEREOF the parties have hereunto set their hands, the day and year first hereinabove written.
Section 39 Dissolution of a Firm
The dissolution of a partnership between all the partners of a firm is called the "dissolution of the firm".
Section 40 Dissolution by Agreement
A firm may be dissolved with the consent of all the partners or in accordance with a contract between the partners.
Section 41 Compulsory Dissolution
A firm is dissolved
(a) by the adjudication of all the partners or of all the partners but one as insolvent,
(b) by the happening of any event which makes it unlawful for the business of the firm to be carried on or for the partners to carry it on in partnership :
Provided that, where more than one separate adventure or undertaking is carried on by the firm, the illegality of one or more shall not of itself cause the dissolution of the firm in respect of its lawful adventures and undertakings.
Section 42 Dissolution on the Happening of Certain Contingencies
Subject to contract between the partners a firm is dissolved
(a) if constituted for a fixed term, by the expiry of that term;
(b) if constituted to carry out one or more adventures or undertakings, by the completion thereof;
(c) by the death of a partner; and
(d) by the adjudication of a partner as an insolvent.
Section 43 Dissolution by Notice of Partnership at Will
(1) Where the partnership is at will, the firm may be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the firm.
(2) The firm is dissolved as from the date mentioned in the notice as the date of dissolution or, if no date is so mentioned, as from the date of the communication of the notice.
Section44 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, wilfully or persistently commits breach of agreements relating to the management of the affairs of the firm of 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, 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.
Section 45 Liability for Acts of Partners done after dissolution
(1) 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.
(2) Notices under sub-section (1) may be given by any partner.
Section 46 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 which representatives according to their rights.