Académique Documents
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of
Partnership
DISSOLUTION AND ITS
CONSEQUENCES
Automatic Dissolution
Dissolution ! Notice
Conse"uences of
Dissolution
2
Modes and Procedures
Dissolution of a partnership means bringing the partnership to an end.
When partners are changed/added/leaves, the relationship between
them change from the original form, thus, the partnership is
dissolved.
The business will come to a halt. However, certain activities may still
continue to allow for the firms business to be wound up.
There are several ways of dissolving a partnership under the Act.
AUTOMATIC DISSOLUTION
DISSOLUTION #$ %I&IN% O' NOTICE
DISSOLUTION #$ O(DE( O' T)E COU(T
The partnership articles itself ma! ascertain as to ho* or
*hat +rounds ma! cause a partnership to come to an end,
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AUTOMATIC DISSOLUTION
i, #$ E-PI(ATION O' TIME O( E&ENT
ii, #$ DEAT). #AN/(UPTC$ O( C)A(%E ON
PA(TNE(0S S)A(E
iii, #$ SUPE(&ENIN% ILLE%ALIT$
4
1AUTOMATIC DISSOLUTION
i, #$ E-PI(ATION O' TIME O( E&ENT
S,23456 states
Subject to any agreement between the partners, a partnership is
dissolved:-
a)If entered into for a fixed term, by the expiration of that term
b)If entered into for a single adventure or underta!ing, by the
termination of that adventure or undertaking.
A partnership where the partners have agreed to be established for a
certain period would automatically dissolve when the period that they
have agreed upon have e!pired.
However, such partnership may still continue after the e!piration of
the agreed period. After the e7pir! period the partnership is
considered as a partnership at *ill. A partnership at will may
only be dissolved when at any time one of the partners give notice to
the other partners of his intention to dissolve the partnership.
Another dissolution that will automatically ta"e place is when the
partners establish partnerships for a certain event or enterprise
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ii, #$ DEAT). #AN/(UPTC$ O( C)A(%E ON PA(TNE(0S S)A(E
S, 28456
Subject to any agreement to the partners, every partnership is dissolved
as regards all the partners by the death or bankruptcy of any
partner.
Death or ban"ruptcy can automatically dissolve a partnership.
However, partners can agree for partnership to continue in spite of the
death and ban"ruptcy of a partner #the firm may still carry on with the
surviving partner or the personal representatives of the deceased
partner.$
S, 28496 provides
%" partnership may at the option of the other partners, be dissolved if
any partner suffers his share of the partnership property to be charged
under this "ct for his separate debt#$
This subsection gives a partner the choice whether to continue with
partnership or not when the other partner charges his share of the
partnership property as security for his own personal debt.
&y charging on the partnership property means that a partner uses his
potion of the partnership property as a security for a personal
loan'.amounts to putting partnership property at the ris" of the
possibility of allowing a stranger to ta"e over partners portion of
partnership property in the event such partner is not able to pay off his
loan. ( an act *hich is contrar! to the partnership a+reement
which does not allow third parties to be involved in the partnership
business.
1AUTOMATIC DISSOLUTION
6
iii, #$ SUPE(&ENIN% ILLE%ALIT$
S,2: states that
" partnership is in every case dissolved by the happening of
any event which makes it unlawful for the business of
the firm to be carried on or for the members of the firm to
carry it on in partnership#$
A change in circumstances or status in law could ma"e it
unlawful for the valid business of a firm to be carried on or
for the members of the firm to carry on in partnership. e.g,
if a partner in a firm is from a country that has declared war
on our country, partner is considered enemy alien.
( ; /upfer )*+*,-*. /.&. 0.*1
The defendant was a partner in a firm with his two brothers. The partnership
business was carried out in 2ran"furt and 3ondon. The 2ran"furt branch placed an
order with a Dutch company in Holland, and payment was to be made by the
defendant from the 3ondon office. War bro"e out on 4
th
August *+*4. The
defendant paid the Dutch company when payment was due, and he was charged
with the offence of trading with the enemy under the Trading with the 5nemy Act
*+*4. 6ne of the issues which arose was whether the partnership had been
dissolved by the outbrea" of the war.
7t was held by the court, that the partnership was dissolved
as soon as war was declared.
1AUTOMATIC DISSOLUTION
7
Dissolution ! Notice
S,234564c6 provides that a partnership is dissolved
If entered into for an undefined time, by any partner giving
notice to other or others of his intention to dissolve the
partnership#$
8artnership entered into for an undefined time is called a
partnership at *ill. 9nder when s,9<456 %here no fixed term
has been agreed upon for the duration of the partnership, any
partner may determine the partnership at any time on giving
notice of his intention to do so to all the other partners#$
Thus a partner who wishes to terminate a partnership has to give
notice to the other partners. The Act does not re:uire that the
notice be given in writing. However, s,9<496provides where a
partnership for an indefinite period was created by a written
document, then it is necessary that the notice of dissolution must
also be in writing and signed by the partner giving notice.
Su=hinder>it Sin+h Mu=er ; Arumu+am De;a (a>ah )*++;-.
<3= **>
8
7f the notice is not written, it can be inferred from the conduct of
the partner, and is effective only against the other partners of the
firm, but not against the third parties dealing with the
partnership. 7t is sufficient where the other partners are informed
or it could be implied from the conduct of the partners. 7n the
case of
Tham /o= Cheon+ ? ors Lo* Pui )en+ @5A::B IMLC 89
A partnership of four persons ended with the sale of the firm to a
limited company. The fourth partner alleged that he had not been
given notice of the dissolution of the partnership. The other three
partners negotiations for the sale of the firm were not "nown to
him until the date of sale on ?
th
of April *+??.
The court held that the conduct of the other three partners in
selling the firm to the limited company must be considered as
showing their intention to dissolve the partnership. As the fourth
partner only "new of the sale on the ?
th
, the intention considered
as having been conveyed and ta"es effect from that date.
'Dissolution ! Notice
9
The giving of notice must be made "nown to the party to whom
the notice is intended. 7n the case of Suramaniam Chettiar ;
/ader Mastan )*+04- @ol. 777 2<AB *41
The court decided that the notice of the intention to retire or
resign from the partnership must be communicated to the other
partners. The act of simply leaving the firm or the partner not
being active cannot be considered as notice of intention to retire.
Dissolution by notice is not allowed where there is an e!press
provision for the partnership to be dissolved in other ways, and
this was established clearly in the case of C,M,M, Le*is ? ors
D,E, #alasin+am )*+>4-*<3= *>.
Cotice once given cannot be withdrawn e!cept with the consent of
all the partners.
Dissolution ! Notice
10
DISSOLUTION #$
O(DE( O' T)E COU(T
The partners are allowed to apply the partnership property for the
payment of the firms debts and liabilities.