The primary purpose of a Partnership firm is to earn profit from the business. Two or more persons join to form a Partnership Deed, a formal agreement to jointly own and run the business. Once this purpose is met, they may decide to end it. To enable this the partnership needs to be dissolved. 

Once dissolved, the business of the firm will end with the process of selling the assets, paying the liabilities, and discharging the claims of the partners. This dissolution of the partnership with all partners of a firm is called the dissolution of a partnership firm. This process involves creating a dissolution agreement between the partners. 

Dissolution may take a Month. The process involves closing, the Realization Account, Partner's loan account, Partner's Capital account, and Cash or book account 

Accounts in the firm are settled as per the rule of the Indian Partnership Act 1932. The rules in settling the accounts are payment against losses including deficiencies of capital out of business profit, subsequently out of capital and finally if needed by the partners individually in the ratio as per their agreement to share profits.

The assets of the firm including any sums contributed by the partners to make up deficiencies of capital shall be applied in the order of payment of debts of the firm to the third parties, payment to each partner as per their ratio due to him/her from the firm for advance as distinct from the capital. The remainder, if any to be divided among the partners in the ratio of their share in the profit.

Section 189 Dissolution of Partnership Firm

When a partnership is dissolved, an assessing Officer would assess the total income of the partnership firm as if no such dissolution or discontinuance has taken place. The procedure of dissolving a partnership firm includes the sale or disposal of all the assets of the firm, a final settlement of all of its liabilities, and the settling of the accounts. 

Mode of Dissolution

A partnership firm may be discontinued or dissolved by dissolution via an agreement or notice, dissolution due to contingencies, By the death of a partner in the firm, Compulsory Dissolution, Dissolution by Court, Due to Mental Instability, Due to Misconduct, and Transfer of Equity.

Responsibility after Dissolution

Even though the liabilities of the partners of the partnership firm ceases to exist, once the firm is declared as dissolved, the partners are liable for any occurrences before the dissolution of the partnership firm.

This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being.