A partnership firm may be dissolved by the court on the application of any partner on any of the following grounds:
- Insanity of a partner. A partner who is of unsound mind cannot carry on the business of the firm. In such a case, the court may dissolve the firm.
- Permanent incapacity of a partner to carry on the business of the firm. A partner who is permanently incapacitated due to a physical or mental disability cannot carry on the business of the firm. In such a case, the court may dissolve the firm.
- Misconduct of a partner. If a partner is guilty of conduct that is likely to affect prejudicially the carrying on of the business of the firm, the court may dissolve the firm. For example, if a partner embezzles the funds of the firm, the court may dissolve the firm.
- Willful or persistent breach of agreement by a partner. If a partner willfully or persistently breaches the partnership agreement, the court may dissolve the firm. For example, if a partner refuses to contribute his or her share of the capital, the court may dissolve the firm.
- Transfer of interest by a partner. If a partner transfers his or her interest in the firm to a third party, the court may dissolve the firm if the other partners do not agree to the transfer.
- Business carried on at a loss. If the business of the firm is being carried on at a loss, the court may dissolve the firm if it is just and equitable to do so.
- Any other ground which is just and equitable. The court may dissolve the firm on any other ground which is just and equitable. For example, if the partners are deadlocked and are unable to agree on how to run the business, the court may dissolve the firm.
Multiple Choice Questions
- Which of the following is not a ground for dissolution of a firm by the court?
- Insanity of a partner.
- Permanent incapacity of a partner to carry on the business of the firm.
- Misconduct of a partner.
- Transfer of interest by a partner to a third party.
The answer is transfer of interest by a partner to a third party. The transfer of interest by a partner to a third party does not automatically dissolve the firm. The other partners can agree to continue the business with the new partner.
- A partner is guilty of embezzlement of funds of the firm. Can the court dissolve the firm?
Yes, the court can dissolve the firm if the embezzlement is serious enough to affect the carrying on of the business of the firm.
- The partners of a firm are deadlocked and are unable to agree on how to run the business. Can the court dissolve the firm?
Yes, the court can dissolve the firm if it is just and equitable to do so.
Answers
- Transfer of interest by a partner to a third party.
- Yes.
- Yes.