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Detailed Study |Dissolution of Partnership |India and US

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Laws in India

The Indian Partnership Act of 1932 defines partnership as follows

“The term “partnership” refers to a relationship between people who have agreed to split the earnings from a firm that is run by all of them or by one of them acting on behalf of all of them. Individuals who have formed a partnership with one another are referred to as “partners,” and the name under which their company is conducted is referred to as “firm-name.”

According to section 39 and 40 of  Indian Partnership Act , 1932 –

“The term “dissolution of the firm” refers to the dissolution of a partnership between all of a firm’s participants. A partnership can be dissolved with all of the partners’ permission or under the terms of a contract between the partners.

United States of America

The section 101 of Uniform Partnership Act,1944 defines partnership as the following –

“Partnerships “means an organisation of two or more people created under section 202, precursor legislation, or analogous law of another jurisdiction to carry on a profit-making company as co-owners.”

“Agreement of partnership” “means the partnership agreement, including changes to the partnership agreement, whether written, oral, or inferred between the partners. “

Section 29 of UPA defines partnership dissolution as the following –

The dissolution of a partnership, as opposed to the winding up of a business, is a change in the relationship of partners induced by one or more partners ceasing to be affiliated in carrying.” The partnership does not end when it dissolves; instead, it continues until the partnership’s affairs are wound up, at which point the remaining partners might opt to form a new partnership.

REASONS FOR DISSOLUTION OF PARTNERSHIP

INDIA

As previously indicated, the dissolution of a partnership alters the current relationship between partners, but the company may continue to operate as usual. The main reason for dissolution of partnership under Indian Partnership Act,1932 are as the following :-

  • The partnership agreement dissolves if there is any change in the present profit sharing ratio between the existing partners of the firm . When the present profit sharing ratio changes , a new agreement is made on the basis of new ratio and hence the old partnership dissolves.
  • When a new partner enters the firm , a new profit sharing ratio is created and the one profit sharing ratio and old partnership agreement dissolves .
  • When an existing partner retires and leaves the firm , a new profit sharing ratio is created and the one profit sharing ratio and old partnership agreement dissolves .
  • When an existing partner passes away or loses his sanity , a new profit sharing ratio is created and the one profit sharing ratio and old partnership agreement dissolves .
  • When a partnership is formed for the purpose of a venture and that venture is completed then the partnership dissolves.
  • When a partnership is formed for a specific period of time and that time period ends , then the partnership agreement dissolves .
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United States of America

Under the Uniform Procedure Act,1944 partnership can be dissolved due to the following reasons :-

  • Dissolution can occur as a result of a breach of contract, such as when partners elect to dismiss a partner despite the fact that no plan will allow them to do so . 
  • The partnership may have run its course, or the partnership might be at will, with one of the partners wishing to quit. It is possible that all of the partners will conclude that continuing is better to dissolving. One of the partners may have been kicked out of the partnership according to a clause in the contract. None of these are infringed upon, though their spirit may have been.
  • The other reason for dissolution is the happening of an event, such as the passing of a legislation, that will make it illegal to prolong the business. A partner might pass away, one or many partners may become insolvent, or the partnership as a whole might fail.
  • Finally, a court order may be used to dissolve the marriage. Courts have the authority to dissolve partnerships when a partner is projected to be a maniac, or of unsound mind, or not able to perform his part of the agreement, “guilty of such conduct as tends to affect prejudicially the carrying on of the business,” or maybe perform in a particular type of way that is “not reasonably right.”

EFFECTS  &  LIABILITIES

INDIA

  • The partners are accountable to third parties until the official notice of dissolution is made; it does not apply to the partner who is deceased, insolvent, sleeping partner, or retired partner.
  • The partner is liable for paying his debt and winding up the partnership’s affairs once the partnership is dissolved.
  • The partner is liable for paying his debt and winding up the partnership’s affairs once the partnership dissolves.
  • The refund of premium following dissolution is outlined under Section 51 of the Indian Partnership Act. The partner is required to pay a premium when joining a partnership business. As a result, if the company dissolves before the deadline for any reason, he is entitled to a refund of the premium.
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UNITED STATES OF AMERICA

  • After the partnership is dissolved, the partner is responsible to the other  remaining partners for his or her part of any joint liability sustained under Section 804 of the Uniform Partnership Act, 1944.
  • A partner who sustains a partnership obligation under the section 804(2) by executing an act that is not proper or enough to dissolve  the partnership business with knowledge of the dissolution is responsible to the partnership for any harm caused by the liability.
  • Dissolution, for the most part, ends the partners’ ability to act on behalf of the partnership. Acts required to dissolve the partnership affairs or finish transactions commenced but aren’t finished during dissolution are the only noteworthy exceptions.
  • Regardless of the latter exemption, no partner can bind the partnership if it has been dissolved because carrying on the company has become illegal, or if the partner trying to carry out power has gone insolvent.

PROCEDURE OF DISSOLUTION

INDIA

  • Mutual consent or agreement is the simplest and most hassle-free means of dissolving a partnership company. A partnership business can be wound up with the consent of all partners or by a contract between them. A contract creates a relationship and can also be used to end it.
  • In a willful partnership, a partner might dissolve the partnership by delivering a written notice to the remaining partners of his or her decision to dissolve the partnership . A notice of dissolution that has been issued cannot be revoked without the permission of the other partners. After adequate notice has been given, any individual partner may initiate the dissolution.
  • If a partner files a lawsuit, the court may dissolve the partnership firm on the grounds that a partner had been unsound, permanently not capable of doing his duties as a partner, if a partner has performed in conduct that may harm the business and firm, or for any other reason that is just and equitable.
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UNITED STATES OF AMERICA

  • If you and/or your partner(s) decide to leave the partnership, reread the legal agreement to verify you follow the dissolution procedures provided in the contract. In most cases, the agreement stipulates that the firm must be dissolved by a majority vote.
  • You and your partner(s) formed your company together, and you should have an open and honest conversation with them about dissolving it. You and your partner should talk about your responsibilities, such as the company’s debts and potential liabilities, as well as how you plan to wind down the company.
  • To legally declare the end of the partnership, you’ll need to file a dissolution of partnership form with the state where your company is located. It’s a prudent precaution to take since it makes it apparent that you’re no longer in a partnership or accountable for its obligations.
  • Notify other parties, such as workers, customers, the landlord, and any government bodies, such as the IRS, that have registered or issued a licence, of the dissolution.
  • Notify your creditors as well. You should make sure that you pay off all of your debts. All commercial bank accounts should be closed.

CONCLUSION

The Indian Partnership Act of 1932 and the Uniform Partnership Act of 1944 have provisions that allow a partnership business to be dissolved either before or after a judicial hearing. The grounds for a firm’s dissolution are explicitly stated in the laws.

In a partnership firm, the act is to make things plain and just so that partners do not take advantage of one other. Act also aids us in maintaining a steady working atmosphere. Both of the acts have their own advantages , disadvantages , procedures , reasons , methods and etc which makes the understanding of the whole concept of partnership easy.

Hence , it is difficult for the researcher to come to conclusion regarding the comparison of laws in of the counties as each of them are essential in their own ways and helps the firms to carry on the business in much easier process.

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