DISSOLUTION OF PARTNERSHIP

Dissolution of partnership is the coming to an end of a partnership agreement. It is the breakup of a partnership business. A partnership may be automatically dissolved due to the following factors:

1. Expiration of Agreement: Where a partnership is entered into for a fixed period of time, it is assumed dissolved at the expiration of the fixed date.
2. Bankruptcy of a Partner: Partnership will be dissolved when one of the partners is bankrupt.
3. Death of a Partner: Death of a partner will bring the business to an end.
4. Notice of Retirement by a Partner: A partnership may be dissolved when a partner has given sufficient notice of his retirement.
5. Joint Decision: Partnership can be dissolved when all the members decide to put a stop to the business relationship.
6. Insolvency of the Business: Partnership can be dissolved when it cannot meet its obligations.
7. Court Verdict: The court may decree dissolution in certain cases, e.g. if a partner is incapacitated or if there is a misconduct.
8. Insanity of a Partner: If one of the partners becomes insane, the remaining partners can apply to the court for dissolution.

Rules for Distribution of Assets on Dissolution

The following procedures must be followed:

1. Losses must be paid out from the capital.
2. Payments of debts and liabilities to outside creditors must be made.
3. Partners’ loan has to be paid.
4. The partners’ capital must be settled.
5. Any profit on the realisation of assets must be shared in the partnership profit-sharing ratio.

BALANCE SHEET OF PARTNERSHIP