— Kishore V, SME and ACW at Edumarz
When a company dissolves, it stops doing business and must settle its finances.
It does so by selling all of its assets to pay off all of the claims against it.
In this regard, it should be emphasised that the following regulations, as set out in Section 48 of the Partnership Act of 1932, will apply if the partners agree.
The following settlement order will be followed according to those guidelines.
(i) Loss Treatment: Losses, including capital deficits, shall be paid
(a) first out of profits,
(b) next out of partners’ capital, and
(c) finally, if required, by the partners individually in their profit sharing ratio.
(ii) Assets: The firm’s assets, including any sums donated by partners to make up for capital shortages, will be utilised in the following order:
(a) To pay the firm’s debts to third parties;
(b) To pay each partner proportionately what is due to him/her from the firm for advances as distinguished from capital (i.e., partner’s loan);
(c) To pay each partner proportionately what is due to him on account of capital