— Kishore V, SME and ACW at Edumarz
When a partnership firm dissolves, the company’s operations are halted. Dissolution entails the sale of assets, the payment of liabilities, and the distribution of profits and losses among all partners.
A corporation can be dissolved in one of the following ways:
1. Dissolution by agreement, which can be done with all partners’ permission or through a contract.
2. Dissolution is required when all partners become insolvent or the firm becomes unlawful due to changes in government policy.
3. Dissolution based on a specific circumstance, such as a certain amount of time, a specific purpose, the death of a partner, or the insolvency of a partner or partners.
4. Dissolution by a partner giving written notice of intent to dissolve the partnership.
5. Court-ordered divorce when a spouse has gone insane, has engaged in criminal activities, has been found guilty of misbehaviour, is unable to execute obligations, or the dissolution grounds has been ruled legitimate.
According to Section 48 of the Partnership Act of 1932, the following regulations apply to the settlement of accounts once a business has been dissolved.
1. The money gained from the sale of assets should be used in the following order:
i. Paying off all external debts and costs.
ii. Any loans or advances owing to partners should be paid back.
iii. All of the partners’ capital should be paid off.
Any money left over after paying for all of these items should be divided among the dissolved firm’s partners according to their previous profit-sharing ratio.
2. In the event of a loss and a capital shortfall, the following shall be paid in the following order:
i. Adjust the loss and capital shortage against the firm’s profits.
ii. Compare to the company’s entire capital.
iii. If any losses or deficits remain after all adjustments, the next step is to absorb the loss according to the individual profit sharing ratio.