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How are the debts, liabilities and assets of a partnership firm settled?

As per Section 46 of the Partnership Act, partners have the right against all the partners to have the property of the firm applied in payment of the debts and liabilities of the firm, and to have the surplus or loss divided amongst themselves in their agreed ratio.

As per Section 48 of the Partnership Act, the assets of the firm should be applied firstly to pay the debt of the firm to third parties, then in repaying each partner any advances due from the firm, then in repayment of capital, and finally, in sharing any remaining amounts amongst the partners in their agreed profit-sharing proportions.Losses must first be paid out of the firm’s profits (if any), then out of its capital and lastly, by the partners’ individually.

What can be done if a former partner of a firm carries out a business in the firm’s name after its dissolution?

As per Section 53 of the Act, after a firm is dissolved, every partner in the absence of a contract between them to the contrary, can restrain any other partner from carrying out a similar business in the firm’s name.
Strategy for maximising revenue from sale of a business
At the time of dissolving a firm’s business, the partners must bear in mind that they are entitled to sell the goodwill of the firm. As per Section 55, after dissolution, the goodwill of the firm can be sold either separately or along with other properties of the firm, subject to contract between the partners.
Can a former partner of a business whose goodwill is sold, carry out a competing ​business after its dissolution?
A former partner of a business whose goodwill is sold can carry on a business competing with that of the buyer and he may advertise such business, but, subject to agreement between him and the buyer, he cannot:

(i) use the firm-name or represent himself as carrying on the business of the firm

(ii) solicit persons who were dealing with the firm before its dissolution.


Liabilities and rights of parties after dissolution

Public notice of the dissolution of the firm must be issued. The notice of the dissolution of the firm in the prescribed form has to be given by the Parties as required by Section 72 of the Partnership Act to the Registrar of Firms and by publication in the Official Gazette as soon as possible and in at least one vernacular newspaper circulating in the place where the firm is situated.


The partners of the firm continue to be liable to the third parties for any act done by them which would have been an act of the firm if done before the dissolution of the firm if such public notice is not provided, as per Section 45 of the Act.


In Maharashtra, notice of dissolution must be given in FORM 'E'. 

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