Difference between Dissolution of Firm and Dissolution of Partnership
Last Updated :
14 Mar, 2024
A Partnership is an association of two or more people to conduct business. A Partnership is a relation between persons who agreed to share the profits of a business carried on by all or any of them acting for all. Partners are someone who is associated with another in a common activity or interest, like a business or partnership law member. Partners are the persons who have entered into a partnership individually. A firm is a business partnership; the name under which it trades. Dissolution of a firm or partnership is disintegration or going into solution. Dissolution is to break the continuity of, to separate, to repel.
What is Dissolution of Firm?
Dissolution of a Firm is the solvency of the firm, i.e., dissolving or going into solution. Dissolution of a firm is the termination of an organised body, especially a formal dismissal. Dissolution of a firm means discontinuing business, and the business relationship among all the partner’s end. According to Section 39 of the Indian Partnership Act, 1932, “Dissolution of the firm means dissolution of partnership among all the partners in the firm.”
In Dissolution of a Firm, all the assets are realised and the liabilities are paid. The balanced realised amount is distributed among all the partners. A firm is dissolved either by the Court Order or without Court Order. A firm is dissolved when all the partners agree to dissolve or on the completion of the venture. The court can give an order to dissolve the firm when a partner becomes an unsound mind person or the court finds the dissolution of the firm justified.
What is Dissolution of Partnership?
Dissolution of Partnership means a change in partnership. Dissolution of Partnership is the change in the relationship of the partners but the firm continues its business. Due to the dissolution of the partnership, a new partnership comes into existence. A partnership is dissolved when:
- There is a change in the profit-sharing ratio among existing partners.
- A new partner is admitted.
- A partner retires and dies.
- A partner becomes insolvent, or
- A firm merges with another firm.
Difference between Dissolution of Firm and Dissolution of Partnership
|
Basis
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Dissolution of a Firm
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Dissolution of PartnershipÂ
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| Meaning |
Dissolution of a Firm means termination of the firm and end of business relationship among all the partners. |
Dissolution of Partnership means there is a change in the business relationship among all the partners and the firm continues to run. |
| Effects |
Dissolution of a Firm leads to the closure of the business and also the end of the partnership. |
Dissolution of Partnership may or may not involve the dissolution of the firm. |
| Books of Accounts |
In case of dissolution of a firm, all the accounts of the firm are closed. |
In case of dissolution of a partnership, books of accounts need not be closed. |
| Settlement of Accounts |
When the firm is dissolved, accounts are settled through assets being realised and the liabilities being paid. The balance amount, if any, is distributed among all the partners. |
When the partnership is dissolved, accounts are settled through assets being revalued and liabilities reassessed. The profit or loss due to it is distributed among all the partners in the old profit-sharing ratio. |
| Business Continuation |
In the dissolution of a firm, business comes to an end. |
In the dissolution of the partnership, the business continues. |
| Courts Intervention  |
A firm is dissolved either by the order of the court or by the voluntary agreement among the partners. |
Dissolution of Partnership is always done voluntarily. |
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