Difference Between Dissolution of Partnership and Dissolution of Partnership Firm
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Know the Difference Between Dissolution of Partnership and Dissolution of Partnership Firm

Introduction

People are confused while thinking about the dissolution of a partnership firm and the dissolution of a partnership because it looks like both have the same meaning, but there are some differences between them. The dissolution of a partnership firm refers to the end of the partnership business and terminates all the existence of the firm identity by the dissolution of a partnership. The firm’s assets will be used to settle all the liabilities of the firm. In contrast, dissolution of a partnership refers to ending the relationship between the partners of the partnership firm. By dissolving a partnership, the partners end their existing relationship connected with an agreement of a partnership.

Here, a notable and important thing is that the dissolution of a partnership may not necessarily be for the dissolution of a partnership firm. The business and identity of the firm will continue under the new arrangement set out by the partners or based on the new agreement. In this article, we address the difference between the dissolution of a partnership firm and the dissolution of a partnership step by step, so please stay tuned and read below;

What is the dissolution of a partnership firm?

The dissolution of a partnership firm refers to the winding up of an existing business or organization run by the firm. As per the provision of the Partnership Act of 1932, the partnership firm has an individual legal identity from the owners of the firm. The partnership firm dissolves all its assets, and liabilities are set off. All due will be paid from the firm assets, including the contribution given by the partners to the firm. After the payment of liabilities, if any excess amount is available, it will be distributed between the partners as per their profit-sharing ratios under the partnership agreement.

The firm can be dissolved in different ways, such as dissolution by agreement, compulsory dissolution, dissolution due to contingent events, dissolution by notice, dissolution by the court, etc.

What is a dissolution of a partnership?

The dissolution of a partnership means the ending of a partnership agreement, which is made between two or more partners for the running of a business by all or by one on behalf of all partners in terms of the partnership aims to gain profits by running a business – the dissolution of a partnership refers to the change of relationship between the partners; However, the firm will carry on doing business.
The dissolution of a partnership means making changes in a partnership.  The partnership will be dissolved if it meets the following:

  • If profit-sharing ratios will change among the existing partners of the firm.
  • If an existing partner decides to retire from the firm business.
  • If an existing partner dies.
  • If a new partner is admitted into the partnership firm.
  • If an existing partner becomes insolvent or insane.
  • If a partnership is created for a specific venture which is completed now.
  • If the partnership is created for a specific time and time has expired.

Difference between dissolution of partnership and dissolution of partnership firm

  • The dissolution of a partnership firm means the ending of the business. That is run under the partnership firm. And the dissolution of a partnership means changes in the relationship among the partners. However, the identity and business of the firm continue.
  • The dissolution of a partnership firm involves shutting down all the operations of the firm. All due of the firm will be paid by set off by selling the assets, and the remaining profits or losses will be distributed among the partners. Dissolution of a partnership involves the dissolution of an existing partnership agreement and the arrangement of a firm asset among the partners according to their profit-sharing ratios.
  • The dissolution process of a partnership firm is very complex because many legal requirements need to be met. On the other hand, the dissolution of a partnership is a less complex and easy process than the dissolution of a firm.
  • Dissolution of a firm involves the business run by a firm with a legal entity of a firm. On the other hand,  the dissolution of a partnership is the termination of a partnership agreement between the partners.

Difference between Dissolution of Firm and Dissolution of Partnership In a Chart

Basis

Dissolution of a Partnership Firm

Dissolution of Partnership

Meaning Dissolution of a partnership firm means ending a firm with the end of all the business relationships between the partners of a firm. Dissolution of Partnership refers to the changes in the business relationship between the partners. However, the firm will continue and run.
Effects The dissolution of a partnership firm results in the end of the partnership business and the partnership. The dissolution of the partnership does not necessarily result in the dissolution of the firm.
Books of Accounts All accounts of the firm are closed with the dissolution of the firm. In the dissolution of a partnership, there is no need to close the book’s account of the firm.
Settlement of Accounts All accounts are settled with the dissolution of a firm. Due will be paid from the assets of the firm. Any amounts are balanced, whether profits or losses are contributed between the partners. All accounts do not need to be settled in the dissolution of the partnership. The Accounts are settled through- the revaluation of assets, liabilities, and goodwill. The profits or losses will be distributed among the partners based on old profit-sharing ratios.
Business Continuation The business of the firm will be ended.  The business of the firm will not be ended. It will continue.
Courts Intervention A partnership firm may be dissolved by a court order or an agreement between the partners. The partnership can be dissolved voluntarily by the partners.

Conclusion

The terms of the dissolution of a partnership firm and the dissolution of a partnership may look similar. That’s why it often creates confusion that both are treated with the same meaning. However, there is a difference between the dissolution of a partnership firm and the dissolution of a partnership. The dissolution of a firm results in the end of an existing business, entity, books account, and all business relations. The dissolution of a partnership results in the ending of a partnership agreement. Through this, all old business relations between them are terminated, and the assets and liabilities of the firm are revalued.

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