A partnership/firm may be dissolved with mutual consent of the Partners or by adjudication of all partners, or if the firm becomes insolvent.
The Partnership Act, 1932, governs the dissolution of a partnership in Pakistan and outlines several circumstances under which a partnership may be dissolved. The relevant provisions for the dissolution of a firm are found in Chapter VI of the Act. Here are the key points:
- Dissolution by Agreement (Section 40): A firm can be dissolved with the consent of all partners or in accordance with a contract between the partners.
- Compulsory Dissolution (Section 41): A firm is compulsorily dissolved:
- By the adjudication of all the partners or all except one as insolvent.
- By the happening of any event which makes it unlawful for the business of the firm to be carried on, or for the partners to carry it on in partnership. This applies unless the firm carries on more than one separate adventure or undertaking, in which case the illegality of one or more does not cause the dissolution of the firm in respect of its lawful adventures and undertakings.
- Dissolution on the Happening of Certain Contingencies (Section 42): Subject to a contract between the partners, a firm is dissolved:
- If it was constituted for a fixed term, by the expiry of that term.
- If it was constituted to carry out one or more adventures or undertakings, by the completion of those ventures.
- By the death of a partner.
- By the adjudication of a partner as an insolvent.
- Dissolution by Notice of Partnership-at-Will (Section 43): If the partnership is at will, the firm can be dissolved by any partner giving notice in writing to all the other partners of their intention to dissolve the firm. The firm is dissolved from the date mentioned in the notice, or if no date is mentioned, from the date of the communication of the notice.
- Dissolution by the Court (Section 44): At the suit of a partner, the Court may dissolve a firm on any of the following grounds:
- A partner becoming of unsound mind.
- A partner other than the one suing becoming permanently incapable of performing their duties as a partner.
- A partner other than the one suing being guilty of conduct likely to affect prejudicially the carrying on of the business.
- A partner other than the one suing willfully or persistently committing breaches of the partnership agreement or conducting themselves in a way that it is not reasonably practicable for the other partners to carry on the business in partnership with them.
- A partner transferring the whole of their interest in the firm to a third party.
- The business of the firm being carried on at a loss.
- Any other ground which renders it just and equitable that the firm should be dissolved.
Upon dissolution, partners are liable for acts done after the dissolution until public notice is given of the dissolution (Section 45). Each partner is entitled to have the property of the firm applied in payment of the debts and liabilities of the firm and to have the surplus distributed among the partners or their representatives (Section 46). The authority of partners continues for purposes necessary to wind up the affairs of the firm and complete transactions begun but unfinished at the time of dissolution (Section 47).
These provisions ensure that the dissolution process is clear and that the rights and obligations of all parties involved are properly managed and concluded.