Dissolution of a Firm by Agreement

A firm can be dissolved by agreement of all the partners. This means that all of the partners must agree to dissolve the firm.

The agreement to dissolve the firm can be made orally or in writing. However, it is advisable to make the agreement in writing to avoid any disputes later on.

The agreement to dissolve the firm should specify the following:

  • The date of dissolution.
  • The method of winding up the firm.
  • The manner in which the assets of the firm will be distributed to the partners.

The agreement to dissolve the firm can be terminated by the partners if all of them agree to do so.

Here are some MCQs on the topic of dissolution of a firm by agreement:

  1. Which of the following statements is true?
    • A firm can be dissolved by agreement of all the partners.
    • The agreement to dissolve the firm must be made in writing.
    • The agreement to dissolve the firm can be terminated by the partners if all of them agree to do so.
    • All of the above.
    • The answer is (d). All of the above statements are true.
  2. A firm is dissolved by agreement of all the partners. The agreement does not specify the method of winding up the firm. How will the firm be wound up?
    • The firm will be wound up by the partners themselves.
    • The firm will be wound up by a liquidator appointed by the court.
    • The firm will not be wound up.
    • The answer is (a). The firm will be wound up by the partners themselves, as the agreement to dissolve the firm did not specify the method of winding up the firm.
  3. A firm is dissolved by agreement of all the partners. The agreement specifies that the assets of the firm will be distributed to the partners in the ratio of their capital contributions. One of the partners objects to the distribution of assets in this manner. What will happen?
    • The partner who objects to the distribution of assets can go to court to challenge the agreement.
    • The agreement to dissolve the firm will be invalid.
    • The assets of the firm will be distributed to the partners in equal shares.
    • The answer is (a). The partner who objects to the distribution of assets can go to court to challenge the agreement. If the court finds that the agreement is unfair, it may order a different method of distribution of assets.