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Page 1
BUSINESS LAWS
4.56
LEARNING OUTCOMES
UNIT – 3: REGISTRATION AND DISSOLUTION OF A
FIRM
After studying this unit, you would be able to understand-
? About mode of getting a firm registered with the authorities.
? The effect of registration of a firm upon the rights of partners’ inter-
se and the rights of the third parties.
? The effect of non-registration on rights of partners and the third
parties.
? The various circumstances when a firm is dissolved.
? The consequences and the effects of the dissolution upon rights and
liabilities of various parties.
Registration and dissolution of a firm
Mode of effecting
Registration
Consequences of
Non-registration
Dissolution of
firm
Dissolution without the intervention
of court (Section 40 to 43)
Dissolution by
Agreement
(Section 40)
Dissolution by
operation of Law
or compulsory
dissolution
(Section 41)
Dissolution on the
happening of certain
contingencies (Section
42)
Dissolution by
notice (Section
43)
Dissolution by
court (Section 44)
UNIT OVERVIEW
© The Institute of Chartered Accountants of India
Page 2
BUSINESS LAWS
4.56
LEARNING OUTCOMES
UNIT – 3: REGISTRATION AND DISSOLUTION OF A
FIRM
After studying this unit, you would be able to understand-
? About mode of getting a firm registered with the authorities.
? The effect of registration of a firm upon the rights of partners’ inter-
se and the rights of the third parties.
? The effect of non-registration on rights of partners and the third
parties.
? The various circumstances when a firm is dissolved.
? The consequences and the effects of the dissolution upon rights and
liabilities of various parties.
Registration and dissolution of a firm
Mode of effecting
Registration
Consequences of
Non-registration
Dissolution of
firm
Dissolution without the intervention
of court (Section 40 to 43)
Dissolution by
Agreement
(Section 40)
Dissolution by
operation of Law
or compulsory
dissolution
(Section 41)
Dissolution on the
happening of certain
contingencies (Section
42)
Dissolution by
notice (Section
43)
Dissolution by
court (Section 44)
UNIT OVERVIEW
© The Institute of Chartered Accountants of India
4.57 THE INDIAN PARTNERSHIP ACT, 1932
3.1 REGISTRATION OF FIRMS
APPLICATION FOR REGISTRATION (SECTION 58): (1) The registration of a firm may be
effected at any time by sending by post or delivering to the Registrar of the area in which any
place of business of the firm is situated or proposed to be situated, a statement in the
prescribed form and accompanied by the prescribed fee, stating-
(a) The firm’s name
(b) The place or principal place of business of the firm,
(c) The names of any other places where the firm carries on business,
(d) the date when each partner joined the firm,
(e) the names in full and permanent addresses of the partners, and
(f) the duration of the firm.
The statement shall be signed by all the partners, or by their agents specially authorised in
this behalf.
(1) Each person signing the statement shall also verify it in the manner prescribed.
(2) A firm name shall not contain any of the following words, namely:-
Note: ‘Crown’, Emperor’, ‘Empress’, ‘Empire’, ‘Imperial’, ‘King’, ‘Queen’, ‘Royal’, or words
expressing or implying the sanction, approval or patronage of Government except
when the State Government signifies its consent to the use of such words as part of
the firm-name by order in writing.
REGISTRATION (SECTION 59): When the Registrar is satisfied that the provisions of Section
58 have been duly complied with, he shall record an entry of the statement in a Register called
the Register of Firms and shall file the statement. Then he shall issue a certificate of
Registration. However, registration is deemed to be completed as soon as an application in
the prescribed form with the prescribed fee and necessary details concerning the particulars
of partnership is delivered to the Registrar. The recording of an entry in the register of firms
is a routine duty of Registrar.
Registration may also be effected even after a suit has been filed by the firm but in that case
it is necessary to withdraw the suit first and get the firm registered and then file a fresh suit.
LATE REGISTRATION ON PAYMENT OF PENALTY (SECTION 59A-1): If the statement in
respect of any firm is not sent or delivered to the Registrar within the time specified in sub-
section (1A) of section 58, then the firm may be registered on payment, to the Registrar, of a
penalty of one hundred rupees per year of delay or a part thereof.
© The Institute of Chartered Accountants of India
Page 3
BUSINESS LAWS
4.56
LEARNING OUTCOMES
UNIT – 3: REGISTRATION AND DISSOLUTION OF A
FIRM
After studying this unit, you would be able to understand-
? About mode of getting a firm registered with the authorities.
? The effect of registration of a firm upon the rights of partners’ inter-
se and the rights of the third parties.
? The effect of non-registration on rights of partners and the third
parties.
? The various circumstances when a firm is dissolved.
? The consequences and the effects of the dissolution upon rights and
liabilities of various parties.
Registration and dissolution of a firm
Mode of effecting
Registration
Consequences of
Non-registration
Dissolution of
firm
Dissolution without the intervention
of court (Section 40 to 43)
Dissolution by
Agreement
(Section 40)
Dissolution by
operation of Law
or compulsory
dissolution
(Section 41)
Dissolution on the
happening of certain
contingencies (Section
42)
Dissolution by
notice (Section
43)
Dissolution by
court (Section 44)
UNIT OVERVIEW
© The Institute of Chartered Accountants of India
4.57 THE INDIAN PARTNERSHIP ACT, 1932
3.1 REGISTRATION OF FIRMS
APPLICATION FOR REGISTRATION (SECTION 58): (1) The registration of a firm may be
effected at any time by sending by post or delivering to the Registrar of the area in which any
place of business of the firm is situated or proposed to be situated, a statement in the
prescribed form and accompanied by the prescribed fee, stating-
(a) The firm’s name
(b) The place or principal place of business of the firm,
(c) The names of any other places where the firm carries on business,
(d) the date when each partner joined the firm,
(e) the names in full and permanent addresses of the partners, and
(f) the duration of the firm.
The statement shall be signed by all the partners, or by their agents specially authorised in
this behalf.
(1) Each person signing the statement shall also verify it in the manner prescribed.
(2) A firm name shall not contain any of the following words, namely:-
Note: ‘Crown’, Emperor’, ‘Empress’, ‘Empire’, ‘Imperial’, ‘King’, ‘Queen’, ‘Royal’, or words
expressing or implying the sanction, approval or patronage of Government except
when the State Government signifies its consent to the use of such words as part of
the firm-name by order in writing.
REGISTRATION (SECTION 59): When the Registrar is satisfied that the provisions of Section
58 have been duly complied with, he shall record an entry of the statement in a Register called
the Register of Firms and shall file the statement. Then he shall issue a certificate of
Registration. However, registration is deemed to be completed as soon as an application in
the prescribed form with the prescribed fee and necessary details concerning the particulars
of partnership is delivered to the Registrar. The recording of an entry in the register of firms
is a routine duty of Registrar.
Registration may also be effected even after a suit has been filed by the firm but in that case
it is necessary to withdraw the suit first and get the firm registered and then file a fresh suit.
LATE REGISTRATION ON PAYMENT OF PENALTY (SECTION 59A-1): If the statement in
respect of any firm is not sent or delivered to the Registrar within the time specified in sub-
section (1A) of section 58, then the firm may be registered on payment, to the Registrar, of a
penalty of one hundred rupees per year of delay or a part thereof.
© The Institute of Chartered Accountants of India
BUSINESS LAWS
4.58
3.2 CONSEQUENCES OF NON-REGISTRATION
(SECTION 69)
Under the English Law, the registration of firms is compulsory. Therefore, there is a penalty
for non-registration of firms. But the Indian Partnership Act does not make the registration of
firms compulsory nor does it impose any penalty for non-registration. However, under
Section 69, non-registration of partnership gives rise to a number of disabilities which we
shall presently discuss. Although registration of firms is not compulsory, yet the consequences
or disabilities of non-registration have a persuasive pressure for their registration. These
disabilities briefly are as follows:
(i) No suit in a civil court by firm or other co-partners against third party: The firm
or any other person on its behalf cannot bring an action against the third party for
breach of contract entered into by the firm, unless the firm is registered and the
persons suing are or have been shown in the register of firms as partners in the firm.
In other words, a registered firm can only file a suit against a third party and the
persons suing have been in the register of firms as partners in the firm.
(ii) No relief to partners for set-off of claim: If an action is brought against the firm by
a third party, then neither the firm nor the partner can claim any set-off, if the suit be
valued for more than
`
100 or pursue other proceedings to enforce the rights arising
from any contract.
(iii) Aggrieved partner cannot bring legal action against other partner or the firm: A
partner of an unregistered firm (or any other person on his behalf) is precluded from
bringing legal action against the firm or any person alleged to be or to have been a
partner in the firm. But, such a person may sue for dissolution of the firm or for
accounts and realization of his share in the firm’s property where the firm is dissolved.
(iv) Third party can sue the firm: In case of an unregistered firm, an action can be brought
against the firm by a third party.
Exceptions: Non-registration of a firm does not, however effect the following rights:
1. The right of third parties to sue the firm or any partner.
2. The right of partners to sue for the dissolution of the firm or for the settlement of the
accounts of a dissolved firm, or for realization of the property of a dissolved firm.
3. The power of an Official Assignees, Receiver of Court to release the property of the
insolvent partner and to bring an action.
4. The right to sue or claim a set-off if the value of suit does not exceed
`
100 in value.
© The Institute of Chartered Accountants of India
Page 4
BUSINESS LAWS
4.56
LEARNING OUTCOMES
UNIT – 3: REGISTRATION AND DISSOLUTION OF A
FIRM
After studying this unit, you would be able to understand-
? About mode of getting a firm registered with the authorities.
? The effect of registration of a firm upon the rights of partners’ inter-
se and the rights of the third parties.
? The effect of non-registration on rights of partners and the third
parties.
? The various circumstances when a firm is dissolved.
? The consequences and the effects of the dissolution upon rights and
liabilities of various parties.
Registration and dissolution of a firm
Mode of effecting
Registration
Consequences of
Non-registration
Dissolution of
firm
Dissolution without the intervention
of court (Section 40 to 43)
Dissolution by
Agreement
(Section 40)
Dissolution by
operation of Law
or compulsory
dissolution
(Section 41)
Dissolution on the
happening of certain
contingencies (Section
42)
Dissolution by
notice (Section
43)
Dissolution by
court (Section 44)
UNIT OVERVIEW
© The Institute of Chartered Accountants of India
4.57 THE INDIAN PARTNERSHIP ACT, 1932
3.1 REGISTRATION OF FIRMS
APPLICATION FOR REGISTRATION (SECTION 58): (1) The registration of a firm may be
effected at any time by sending by post or delivering to the Registrar of the area in which any
place of business of the firm is situated or proposed to be situated, a statement in the
prescribed form and accompanied by the prescribed fee, stating-
(a) The firm’s name
(b) The place or principal place of business of the firm,
(c) The names of any other places where the firm carries on business,
(d) the date when each partner joined the firm,
(e) the names in full and permanent addresses of the partners, and
(f) the duration of the firm.
The statement shall be signed by all the partners, or by their agents specially authorised in
this behalf.
(1) Each person signing the statement shall also verify it in the manner prescribed.
(2) A firm name shall not contain any of the following words, namely:-
Note: ‘Crown’, Emperor’, ‘Empress’, ‘Empire’, ‘Imperial’, ‘King’, ‘Queen’, ‘Royal’, or words
expressing or implying the sanction, approval or patronage of Government except
when the State Government signifies its consent to the use of such words as part of
the firm-name by order in writing.
REGISTRATION (SECTION 59): When the Registrar is satisfied that the provisions of Section
58 have been duly complied with, he shall record an entry of the statement in a Register called
the Register of Firms and shall file the statement. Then he shall issue a certificate of
Registration. However, registration is deemed to be completed as soon as an application in
the prescribed form with the prescribed fee and necessary details concerning the particulars
of partnership is delivered to the Registrar. The recording of an entry in the register of firms
is a routine duty of Registrar.
Registration may also be effected even after a suit has been filed by the firm but in that case
it is necessary to withdraw the suit first and get the firm registered and then file a fresh suit.
LATE REGISTRATION ON PAYMENT OF PENALTY (SECTION 59A-1): If the statement in
respect of any firm is not sent or delivered to the Registrar within the time specified in sub-
section (1A) of section 58, then the firm may be registered on payment, to the Registrar, of a
penalty of one hundred rupees per year of delay or a part thereof.
© The Institute of Chartered Accountants of India
BUSINESS LAWS
4.58
3.2 CONSEQUENCES OF NON-REGISTRATION
(SECTION 69)
Under the English Law, the registration of firms is compulsory. Therefore, there is a penalty
for non-registration of firms. But the Indian Partnership Act does not make the registration of
firms compulsory nor does it impose any penalty for non-registration. However, under
Section 69, non-registration of partnership gives rise to a number of disabilities which we
shall presently discuss. Although registration of firms is not compulsory, yet the consequences
or disabilities of non-registration have a persuasive pressure for their registration. These
disabilities briefly are as follows:
(i) No suit in a civil court by firm or other co-partners against third party: The firm
or any other person on its behalf cannot bring an action against the third party for
breach of contract entered into by the firm, unless the firm is registered and the
persons suing are or have been shown in the register of firms as partners in the firm.
In other words, a registered firm can only file a suit against a third party and the
persons suing have been in the register of firms as partners in the firm.
(ii) No relief to partners for set-off of claim: If an action is brought against the firm by
a third party, then neither the firm nor the partner can claim any set-off, if the suit be
valued for more than
`
100 or pursue other proceedings to enforce the rights arising
from any contract.
(iii) Aggrieved partner cannot bring legal action against other partner or the firm: A
partner of an unregistered firm (or any other person on his behalf) is precluded from
bringing legal action against the firm or any person alleged to be or to have been a
partner in the firm. But, such a person may sue for dissolution of the firm or for
accounts and realization of his share in the firm’s property where the firm is dissolved.
(iv) Third party can sue the firm: In case of an unregistered firm, an action can be brought
against the firm by a third party.
Exceptions: Non-registration of a firm does not, however effect the following rights:
1. The right of third parties to sue the firm or any partner.
2. The right of partners to sue for the dissolution of the firm or for the settlement of the
accounts of a dissolved firm, or for realization of the property of a dissolved firm.
3. The power of an Official Assignees, Receiver of Court to release the property of the
insolvent partner and to bring an action.
4. The right to sue or claim a set-off if the value of suit does not exceed
`
100 in value.
© The Institute of Chartered Accountants of India
4.59 THE INDIAN PARTNERSHIP ACT, 1932
5. The right to suit and proceeding instituted by legal representatives or heirs of the
deceased partner of a firm for accounts of the firm or to realise the property of the
firm.
Example 1: A & Co. is registered as a partnership firm in 2017 with A, B and C partners. In
2018, A dies. In 2019, B and C sue X in the name and on behalf of A & Co. without fresh
registration. Now the first question for our consideration is whether the suit is maintainable.
As regards the question whether in the case of a registered firm (whose business was carried
on after its dissolution by death of one of the partners), a suit can be filed by the remaining
partners in respect of any subsequent dealings or transactions without notifying to the
Registrar of Firms, the changes in the constitution of the firm, it was decided that the
remaining partners should sue in respect of such subsequent dealings or transactions even
though the firm was not registered again after such dissolution and no notice of the partner
was given to the Registrar.
The test applied in these cases was whether the plaintiff satisfied the only two requirements
of Section 69 (2) of the Act namely,
(i) the suit must be instituted by or on behalf of the firm which had been registered;
(ii) the person suing had been shown as partner in the register of firms. In view of this
position of law, the suit is in the case by B and C against X in the name and on behalf
of A & Co. is maintainable.
Now, in the above example, what difference would it make, if in 2019 B and C had taken
a new partner, D, and then filed a suit against X without fresh registration?
Where a new partner is introduced, the fact is to be notified to Registrar who shall make a
record of the notice in the entry relating to the firm in the Register of firms. Therefore, the
firm cannot sue as D’s (new partner’s) name has not been entered in the register of firms. It
was pointed out that in the second requirement, the phrase “person suing” means persons in
the sense of individuals whose names appear in the register as partners and who must be all
partners in the firm at the date of the suit.
3.3 DISSOLUTION OF FIRM (SECTIONS 39 - 47)
According to Section 39 of the Indian Partnership Act, 1932, the dissolution of partnership
between all partners of a firm is called the ‘dissolution of the firm’.
Thus, the dissolution of firm means the discontinuation of the legal relation existing between
all the partners of the firm. But when only one or more partners retires or becomes
incapacitated from acting as a partner due to death, insolvency or insanity, the partnership,
i.e. the relationship between such a partner and other is dissolved, but the rest may decide to
© The Institute of Chartered Accountants of India
Page 5
BUSINESS LAWS
4.56
LEARNING OUTCOMES
UNIT – 3: REGISTRATION AND DISSOLUTION OF A
FIRM
After studying this unit, you would be able to understand-
? About mode of getting a firm registered with the authorities.
? The effect of registration of a firm upon the rights of partners’ inter-
se and the rights of the third parties.
? The effect of non-registration on rights of partners and the third
parties.
? The various circumstances when a firm is dissolved.
? The consequences and the effects of the dissolution upon rights and
liabilities of various parties.
Registration and dissolution of a firm
Mode of effecting
Registration
Consequences of
Non-registration
Dissolution of
firm
Dissolution without the intervention
of court (Section 40 to 43)
Dissolution by
Agreement
(Section 40)
Dissolution by
operation of Law
or compulsory
dissolution
(Section 41)
Dissolution on the
happening of certain
contingencies (Section
42)
Dissolution by
notice (Section
43)
Dissolution by
court (Section 44)
UNIT OVERVIEW
© The Institute of Chartered Accountants of India
4.57 THE INDIAN PARTNERSHIP ACT, 1932
3.1 REGISTRATION OF FIRMS
APPLICATION FOR REGISTRATION (SECTION 58): (1) The registration of a firm may be
effected at any time by sending by post or delivering to the Registrar of the area in which any
place of business of the firm is situated or proposed to be situated, a statement in the
prescribed form and accompanied by the prescribed fee, stating-
(a) The firm’s name
(b) The place or principal place of business of the firm,
(c) The names of any other places where the firm carries on business,
(d) the date when each partner joined the firm,
(e) the names in full and permanent addresses of the partners, and
(f) the duration of the firm.
The statement shall be signed by all the partners, or by their agents specially authorised in
this behalf.
(1) Each person signing the statement shall also verify it in the manner prescribed.
(2) A firm name shall not contain any of the following words, namely:-
Note: ‘Crown’, Emperor’, ‘Empress’, ‘Empire’, ‘Imperial’, ‘King’, ‘Queen’, ‘Royal’, or words
expressing or implying the sanction, approval or patronage of Government except
when the State Government signifies its consent to the use of such words as part of
the firm-name by order in writing.
REGISTRATION (SECTION 59): When the Registrar is satisfied that the provisions of Section
58 have been duly complied with, he shall record an entry of the statement in a Register called
the Register of Firms and shall file the statement. Then he shall issue a certificate of
Registration. However, registration is deemed to be completed as soon as an application in
the prescribed form with the prescribed fee and necessary details concerning the particulars
of partnership is delivered to the Registrar. The recording of an entry in the register of firms
is a routine duty of Registrar.
Registration may also be effected even after a suit has been filed by the firm but in that case
it is necessary to withdraw the suit first and get the firm registered and then file a fresh suit.
LATE REGISTRATION ON PAYMENT OF PENALTY (SECTION 59A-1): If the statement in
respect of any firm is not sent or delivered to the Registrar within the time specified in sub-
section (1A) of section 58, then the firm may be registered on payment, to the Registrar, of a
penalty of one hundred rupees per year of delay or a part thereof.
© The Institute of Chartered Accountants of India
BUSINESS LAWS
4.58
3.2 CONSEQUENCES OF NON-REGISTRATION
(SECTION 69)
Under the English Law, the registration of firms is compulsory. Therefore, there is a penalty
for non-registration of firms. But the Indian Partnership Act does not make the registration of
firms compulsory nor does it impose any penalty for non-registration. However, under
Section 69, non-registration of partnership gives rise to a number of disabilities which we
shall presently discuss. Although registration of firms is not compulsory, yet the consequences
or disabilities of non-registration have a persuasive pressure for their registration. These
disabilities briefly are as follows:
(i) No suit in a civil court by firm or other co-partners against third party: The firm
or any other person on its behalf cannot bring an action against the third party for
breach of contract entered into by the firm, unless the firm is registered and the
persons suing are or have been shown in the register of firms as partners in the firm.
In other words, a registered firm can only file a suit against a third party and the
persons suing have been in the register of firms as partners in the firm.
(ii) No relief to partners for set-off of claim: If an action is brought against the firm by
a third party, then neither the firm nor the partner can claim any set-off, if the suit be
valued for more than
`
100 or pursue other proceedings to enforce the rights arising
from any contract.
(iii) Aggrieved partner cannot bring legal action against other partner or the firm: A
partner of an unregistered firm (or any other person on his behalf) is precluded from
bringing legal action against the firm or any person alleged to be or to have been a
partner in the firm. But, such a person may sue for dissolution of the firm or for
accounts and realization of his share in the firm’s property where the firm is dissolved.
(iv) Third party can sue the firm: In case of an unregistered firm, an action can be brought
against the firm by a third party.
Exceptions: Non-registration of a firm does not, however effect the following rights:
1. The right of third parties to sue the firm or any partner.
2. The right of partners to sue for the dissolution of the firm or for the settlement of the
accounts of a dissolved firm, or for realization of the property of a dissolved firm.
3. The power of an Official Assignees, Receiver of Court to release the property of the
insolvent partner and to bring an action.
4. The right to sue or claim a set-off if the value of suit does not exceed
`
100 in value.
© The Institute of Chartered Accountants of India
4.59 THE INDIAN PARTNERSHIP ACT, 1932
5. The right to suit and proceeding instituted by legal representatives or heirs of the
deceased partner of a firm for accounts of the firm or to realise the property of the
firm.
Example 1: A & Co. is registered as a partnership firm in 2017 with A, B and C partners. In
2018, A dies. In 2019, B and C sue X in the name and on behalf of A & Co. without fresh
registration. Now the first question for our consideration is whether the suit is maintainable.
As regards the question whether in the case of a registered firm (whose business was carried
on after its dissolution by death of one of the partners), a suit can be filed by the remaining
partners in respect of any subsequent dealings or transactions without notifying to the
Registrar of Firms, the changes in the constitution of the firm, it was decided that the
remaining partners should sue in respect of such subsequent dealings or transactions even
though the firm was not registered again after such dissolution and no notice of the partner
was given to the Registrar.
The test applied in these cases was whether the plaintiff satisfied the only two requirements
of Section 69 (2) of the Act namely,
(i) the suit must be instituted by or on behalf of the firm which had been registered;
(ii) the person suing had been shown as partner in the register of firms. In view of this
position of law, the suit is in the case by B and C against X in the name and on behalf
of A & Co. is maintainable.
Now, in the above example, what difference would it make, if in 2019 B and C had taken
a new partner, D, and then filed a suit against X without fresh registration?
Where a new partner is introduced, the fact is to be notified to Registrar who shall make a
record of the notice in the entry relating to the firm in the Register of firms. Therefore, the
firm cannot sue as D’s (new partner’s) name has not been entered in the register of firms. It
was pointed out that in the second requirement, the phrase “person suing” means persons in
the sense of individuals whose names appear in the register as partners and who must be all
partners in the firm at the date of the suit.
3.3 DISSOLUTION OF FIRM (SECTIONS 39 - 47)
According to Section 39 of the Indian Partnership Act, 1932, the dissolution of partnership
between all partners of a firm is called the ‘dissolution of the firm’.
Thus, the dissolution of firm means the discontinuation of the legal relation existing between
all the partners of the firm. But when only one or more partners retires or becomes
incapacitated from acting as a partner due to death, insolvency or insanity, the partnership,
i.e. the relationship between such a partner and other is dissolved, but the rest may decide to
© The Institute of Chartered Accountants of India
BUSINESS LAWS
4.60
continue. In such cases, there is in practice, no dissolution of the firm. The particular partner
goes out, but the remaining partners carry on the business of the firm, it is called dissolution
of partnership. In the case of dissolution of the firm, on the other hand, the whole firm is
dissolved. The partnership terminates as between each and every partner of the firm.
Dissolution of Firm Vs. Dissolution of Partnership
S. No. Basis of Difference Dissolution of Firm Dissolution of Partnership
1. Continuation of
business
It involves discontinuation of
business in partnership.
It does not affect
continuation of business. It
involves only reconstitution
of the firm.
2. Winding up It involves winding up of the
firm and requires realization
of assets and settlement of
liabilities.
It involves only
reconstitution and requires
only revaluation of assets
and liabilities of the firm.
3. Order of court A firm may be dissolved by the
order of the court.
Dissolution of partnership is
not ordered by the court.
4. Scope It necessarily involves
dissolution of partnership.
It may or may not involve
dissolution of firm.
5. Final closure of
books
It involves final closure of
books of the firm.
It does not involve final
closure of the books of the
firm.
Modes of Dissolution of a firm (Sections 40-44)
The dissolution of partnership firm may be in any of the following ways:
1. DISSOLUTION WITHOUT THE ORDER OF THE COURT OR VOLUNTARY
DISSOLUTION:
It consists of following four types:
(i) Dissolution by Agreement (Section 40):
Section 40 gives right to the partners to dissolve the partnership by agreement
with the consent of all the partners or in accordance with a contract between
the partners. ‘Contract between the partners’ means a contract already made.
(ii) Compulsory dissolution (Section 41):
A firm is compulsorily dissolved
? by the adjudication of all the partners or of all the partners but one as
insolvent; or
© The Institute of Chartered Accountants of India
Read More
FAQs on ICAI Notes- Unit 3: Registration and Dissolution of a Firm - CA Foundation
| 1. What is the process of registration of a firm? |  |
Ans. The process of registration of a firm involves the following steps:
1. Prepare a partnership deed: The partners must draft a partnership deed that outlines the terms and conditions of the partnership, such as profit sharing ratio, capital contributions, and responsibilities of each partner.
2. Obtain a PAN card: The firm must obtain a Permanent Account Number (PAN) card from the Income Tax Department.
3. Apply for registration: The partners need to apply for registration of the firm with the Registrar of Firms by submitting the partnership deed, along with the prescribed fees and necessary documents.
4. Verification and registration: The Registrar of Firms verifies the documents and if satisfied, registers the firm by issuing a Certificate of Registration.
| 2. What are the documents required for the registration of a firm? | |
Ans. The documents required for the registration of a firm are as follows:
1. Partnership deed: A duly signed partnership deed that outlines the terms and conditions of the partnership.
2. Identity proof: Identity proofs of all the partners, such as PAN card, Aadhaar card, or passport.
3. Address proof: Address proofs of all the partners, such as Aadhaar card, voter ID card, or passport.
4. Proof of ownership: If the firm's place of business is owned by any of the partners, then proof of ownership, such as property documents, must be submitted.
5. Consent letter: A consent letter from all the partners stating their willingness to become partners of the firm.
6. Partnership registration application: The prescribed application form for partnership registration, duly filled and signed by all the partners.
| 3. Can a firm be dissolved without the consent of all partners? | |
Ans. No, a firm cannot be dissolved without the consent of all partners. Dissolution of a firm can only occur when all the partners mutually agree to dissolve the firm. All partners must be present and give their consent in order for the dissolution process to be initiated. If any partner does not agree to the dissolution, the firm cannot be dissolved.
| 4. What is the difference between dissolution and registration of a firm? | |
Ans. The difference between dissolution and registration of a firm is as follows:
- Registration of a firm: Registration of a firm refers to the process of legally establishing the partnership by obtaining a Certificate of Registration from the Registrar of Firms. It involves drafting a partnership deed, applying for registration, and fulfilling the necessary formalities.
- Dissolution of a firm: Dissolution of a firm refers to the termination or ending of a partnership. It can occur due to various reasons, such as mutual agreement, expiry of partnership term, death of a partner, insolvency, or court orders. Dissolution results in the end of all business activities of the firm and the settlement of its affairs.
| 5. Can a firm be dissolved if one partner wants to leave? | |
Ans. Yes, a firm can be dissolved if one partner wants to leave. If any partner expresses his/her intention to leave the partnership, it can lead to the dissolution of the firm. However, the dissolution process may vary depending on the terms and conditions mentioned in the partnership deed. It is advisable to refer to the partnership deed and seek legal advice to properly dissolve the firm in such cases.
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