Dissolution of partnership and of the firm

Two things can be 'dissolved', and they are not the same.

• Dissolution of partnership: the relationship between the partners changes. A partner joins, retires, dies or becomes insolvent, the ratio changes, or the agreed term ends. The old partnership ends, but the firm carries on its business under a new agreement.
• Dissolution of the firm (Section 39): the partnership between all the partners ends. The business closes, its assets are sold, its liabilities paid, and what is left goes to the partners.

So dissolving the firm always dissolves the partnership, but dissolving a partnership does not always dissolve the firm.

How a firm can be dissolved:

• By agreement: all partners agree, or the deed says so.
• Compulsory: all partners, or all but one, become insolvent; or the business becomes illegal.
• On contingencies, unless agreed otherwise: the fixed term expires; the venture it was formed for is complete; a partner dies or becomes insolvent.
• By notice: in a partnership at will, any partner can give written notice to dissolve.
• By the court, when a partner asks it to, on grounds such as: a partner becomes of unsound mind or permanently unable to work; misconduct that harms the business; persistent breach of the agreement; a partner transfers his whole interest to an outsider; the business can only run at a loss; or the court finds it just and equitable.