DIFFERENCE BETWEEN DISSOLUTION OF PARTNERSHIP AND DISSOLUTION OF FIRM

Definition of Dissolution of Partnership

Partnership implies the abstract legal relation that exists between the partners. Dissolution of Partnership is, therefore, the termination of the relation between the partners.

This may take place due to the retirement or incapacity of a partner due to insanity, death or any other cause, the partnership, meaning that the relationship between that partner and other partners comes to an end. However, the remaining partners may continue, and thus the firm does not lose its existence. But, when the partners do not undertake the business further, the firm is dissolved automatically.

Definition of Dissolution of Firm

Dissolution of a Firm is the solvency of the firm, i.e., dissolving or going into solution. Dissolution of a firm is the termination of an organised body, especially a formal dismissal. Dissolution of a firm means discontinuing business, and the business relationship among all the partner’s end. According to Section 39 of the Indian Partnership Act, 1932, “Dissolution of the firm means dissolution of partnership among all the partners in the firm.”

 

Basis of Difference	Dissolution of Partnership	Dissolution of Partnership Firm
Meaning	It means change in the partnership deed (or the agreement) among the partners.	It means that the business is wound up and the firm is dissolved.
Discontinuation of business	It does not affect the continuation of business.	It affects the business. Firm is closed in this case.
Assets and Liabilities	Assets and liabilities are revalued. New balance sheet is prepared.	Assets are sold and realized. Liabilities are paid off.
Intervention by court	There is no intervention by the court.	Court has inherent power to intervene. By its order, a firm can be dissolved.
Economic relationship	Economic relationship among partners may remain or change.	Economic relationship among partners comes to an end.
Closure of books of accounts	No need to close account boos, as the business continues to operate.	All books of account are closed.