CONSEQUENCES OF DISSOLUTION

CONSEQUENCES OF DISSOLUTION

On the dissolution of a partnership, firstly, the assets of the firm, including goodwill, are realised. Then the amount realised, is applied first towards repayment of liabilities to outsiders and loans taken from partners; afterwards the capital contributed by partners is repaid and, if there is still surplus, it is distributed among the partners in their profit-sharing ratio.

Conversely, after payment of liabilities of the firm and repayment of loans from partners, if the assets of the firm left over are insufficient to repay in full the capital contributed by each partner, the deficiency is borne by the partners in their profit- sharing ratio.

According to the provisions contained in section 48 of the Partnership Act, upon dissolution of partnership, the mutual rights of the partners, unless otherwise agreed upon, are settled in the following manner:

(a) Losses including deficiencies of capital are paid, first out of profits, next out of capital and, lastly, if necessary, by the partners individually in the proportion in which they are entitled to share profits.

(b) The assets of the firm, including any sums contributed by the partners to make up deficiencies of capital have to be applied in the following manner and order:

     (i) in paying the debts of the firm to third parties;

     (ii) in paying to each partner rateably what is due to him from the firm in respect of advances as           distinguished from capital;

     (iii) in paying to each partner what is due to him on account of capital; and

     (iv) the residue, if any, to be divided among the partners in the proportion in which they are                   entitled to share profits.