Consequences of a dissolution of a partnership firm.

By Koushambi Sengupta

There are various ways in which a partnership firm can be dissolved. A partnership firm can be dissolved by agreement or by notice or on happening of certain contingencies or by compulsory dissolution or by Court. 

Some of the consequences of the dissolution of the partnership firm are mentioned below.

A. Liability of partners continues after the dissolution of the partnership firm.

The partners of a partnership firm continue to be liable to third parties for any act done by them even after the dissolution of the firm until public notice is given which notifies such dissolution.

If the firm is a registered one then notice must be given to the Registrar of Firms and also in at least one local newspaper of the district where the firm's principle Office is situated. 

B. Authorities of partners continue for the purpose of winding up. 

After the dissolution of the firm, the authorities of each partner along with some other rights and obligations continue for the following purposes- 

a. For the purpose of winding the affairs of the firm. For instance, calculating the amount due to the debtors and paying to creditors, disposition of the property, etc.

b. To complete unfinished transactions at the time of dissolution. For instance, taking the delivery of goods ordered before dissolution and making payment for them. 

C. Rights of the partners on the dissolution of the firm. 

Every partner or his representatives, on the dissolution of the firm, has the right to have the property of the firm be applied in payment of debts and liabilities of the firm. The surplus of the firm must be distributed among the partners. 

D. Partners have liability to share personal profits. 

As long as the dissolved firm is in the process of winding up, it is the duty of every partner to not make any personal profit out of the transactions of the firm. If a partner makes any profit, he shall be accountable to the firm for such profits. 

E. Returning of the premium. 

Where a partnership is for a fixed period of time and a partner paid a premium while entering into a partnership, he shall be entitled to get repayment of a certain amount of premium. 

F. Where partnership contract rescinds due to fraud or any other reason. 

A contract of a partnership may rescind due to fraud or misrepresentation. In such cases, the following are the rights of the partners.

a. A partner has a right of lien. The right of lien is on the surplus of the assets of the firm that remains after all the debts are cleared. 

b. Rank as a creditor. A partner has a rank of a creditor to the firm is any payment is due to him by the firm.

c. Right to claim indemnity. A partner has the right to claim indemnity from other partners who are guilty of fraud or misrepresentation. 

This article does not intend to hurt the sentiments of any individual, community, sect, or religion, etcetera. This article is based purely on the author’s personal opinion and views in the exercise of the Fundamental Rights guaranteed under Article 19(1)(A) and other related laws being enforced in India for the time being.