Deed of Dissolution of Partnership

(To be executed on Rs. 10/- Non Judicial Stamp Paper)

THIS DEED OF DISSOLUTION OF PARTNERSHIP made the………………… day

of…………………
2007 BETWEEN…………………. WHEREAS the partners hereto under a deed of
partnership dated………………… made between them formed themselves into a
business firm and carried on business under the name and style of…………………
in pursuant to the covenants, stipulations and provision contained in the said
deed;

AND WHEREAS it has been mutually decided between the parties that the said
partnership shall be
dissolved, and the said trade and business shall be wound up and the stock-
in-trade, assets and credits realized and called in, and the net proceeds after
payment and satisfaction of all debts and liabilities divided between the
partners according to the covenants in this behalf appearing in the deed of
partnership.

NOW THIS DEED WITNESSES that in pursuance of the said agreement it is

hereby declared and
agreed by and between the parties hereto as follows, that is to say:

1.The said partnership between the partners hereto under the deed,
dated………………… hereunto
appended shall be determined and stand dissolved as from the…………………
day of…………………

2. And the parties hereto singly or jointly shall not carry on the business of the
said firm
of………………… under the said name and style for a period of………………… years
hence.

3. The parties hereto shall on the aforesaid date of………………… sign notices of
the dissolution and
forthwith advertise in the local Official Gazette the fact of dissolution as
required by Section 45 of the
Indian Partnership Act AND shall also intimate the fact of dissolution to the
Registrar of Firms under the provision of Section 63 of the said Act.
4. Within………………… days after the dissolution of the partnership a full and
general account and
balance sheet shall be taken and made of the property, assets and liabilities of
the partnership; and a full and particular inventory and valuation of all the
machinery, plants, tools, utensils, stock in hand, office equipment, materials
and effects belonging to the firm shall be made by the parties or such other
person as the partners may choose to appoint, whose decision shall be final
and binding upon the partners, and all debts owing to the firm shall be
collected and got in by the parties or such other persons as the parties may by
instrument in his behalf appoint.

5. That as soon as may be, after the property, assets and liabilities have been
got in and disbursed
the parties or such other person or persons whom the parties may have
appointed under the foregoing clause shall divide and apportion the share of
the parties, in the proportion of the contribution of the parties towards the
capital. In such division any amounts paid earlier or due to the parties
according to the books of the partnership shall be taken into account. That the
cost of liquidation proceedings shall also be deemed to be a liability of the
partnership and paid from the funds of the partnership.

6. That in case the winding up shows a loss or the assets of the partnership are
insufficient to meet
the liabilities and debts of the partnership then the partners shall forthwith pay
such losses in the
proportion of their contribution to the capital.

7. Each of the parties shall, so soon as the others or any of them, or their or his
representatives, shall
have executed and done all the assurances, acts or things hereby agreed to be
done by them
respectively and at the request and cost of such other or others, or their or his
representatives execute to them or him such releases, indemnifies, and
assurances as may be reasonable and proper;

IN WITNESS WHEREOF the said AB, CD and EF have hereto signed and
executed this agreement
of dissolution and appended it to the said deed of partners, dated…………………

WITNESSES:
1. Sd/- A.B.

2. Sd/- C.D.

3. Sd/- E.F.

Dissolving a partnership firm means discontinuing the business under the

name of the said partnership firm. In this case, all liabilities are finally
settled by selling off assets or transferring them to a particular partner,
settling all accounts that existed with the partnership firm.

Any profit/ loss is transferred to partners in their profit sharing ratio as

agreed by them in the partnership deed.

Dissolving a partnership firm is different from dissolving a partnership. In

the former case, the firm ends its name and hence cannot do business in
the future. But in case of dissolving a partnership, the existing partnership
is dissolved by consent or on happening of a certain event, but the firm can
retain its existence if remaining partners enter into a new partnership
agreement.

Ways of Dissolving a Partnership

Firm
There are different ways in which a partnership firm may get dissolved.
They are –
When partners mutually agreed

It is the easiest way to dissolve a partnership firm since all partners have
mutually agreed upon closing the partnership firm. Partners can give a
mutual consent or may enter into an agreement for the dissolve.

Compulsory dissolution

A firm may need to be dissolved compulsorily if:

• All partners or all partners except one partner are declared

insolvent.

• The firm is carrying unlawful activities like dealing in drugs or

other illegal products or doing business with alien countries or
other countries that may harm the interest of India or doing other
such activities.

Dissolution depending on certain

contingent events

Upon happening of certain events, a firm may be required to get dissolved:

• Expiry of fixed-term– Partnership formed for a fixed term will

get dissolved once the term gets over.

• Completion of a task– Sometimes, a partnership is formed for

a certain task or objective. Once the task is completed, the
partnership will automatically get dissolved.
 • Death of the partner– If there are only two partners, and one of
the partner dies, the partnership firm will automatically dissolve.
If there are more than two partners, other partners may continue
to run the firm. In such case, only the partnership will get
dissolved, and other partners will enter into a new agreement.

Dissolution by notice

If a partnership business is at will, any partner can dissolve the partnership

by giving advance notice. Notice will contain a date from which dissolution
will be effective.

Dissolution by Court

If any of the partners become mentally unstable or misbehaves with the

other partner(s) or doesn’t abide by the clauses of the agreement, the other
partner(s) may file a case in the court to dissolve the firm. But a court can
dissolve the firm only if it is registered with the Registrar of Firms. Hence an
unregistered partnership firm can’t be dissolved by the court.

Transfer of interest or equity to the

third party

If any partner transfers control in the form of interest or equity to a third

party without consulting other partners, the partner(s) may dissolve the
firm.
Partners still liable to third parties
Until a public notice of dissolution is given, the partners remain liable for
any act done by any of the partners which would have been an act of the
firm, if such act was done before resolution.

If a partner has been declared insolvent or has retired from the firm, he will
not be liable for any acts done after his insolvency or retirement. The legal
heirs of any deceased partner are also not liable for any acts done by other
partners after the partner has died.

How are accounts settled

Accounts of the firm are settled in the following order–

• Losses of the firm will be paid out of the profits, next out of the
capital of the partners, and even then if losses aren’t paid off,
losses will be divided among the partners in profit sharing ratios.

• Assets of the firm and the capital contributed by the partners to

set-off losses of the firm will be applied in the following order–

• Third party debts will be paid first.

• Next, the loan amount taken by the firm from any

partner will be repaid to that partner.

• Capital contributed by each partner will be repaid to

him in the capital contribution ratio.

• The Balance amount will be shared among the

partners in their profit sharing ratios.
 • Upon realization, all assets will be sold off in the market, and the
cash realizing out of such a sale will be used for paying the
liabilities. Assets or liabilities may also be taken over by the
partner(s) for which the respective partner capital accounts will
be adjusted by such amount.

Premium to be returned on
premature dissolution
If a partner paid a certain premium for entering into a partnership for a fixed
term, and the firm is dissolved before the end of the fixed term, the firm is
liable to repay the partner his premium amount. But few conditions are
attached with this –

• The firm is not dissolving due to the death of a partner.

• Dissolution should not be happening due to his misconduct.

• Dissolution is happening on the basis of an agreement that

contains no provision for repayment of full or a part of the
premium