Financial Accounting · Dissolution of Partnership Firms including Piecemeal Distribution

Dissolution of Partnership Firm: Meaning and Modes

Updated 10 October 2026 · Fact-checked

Under Section 39 of the Indian Partnership Act, 1932, dissolution of a firm means dissolution of the partnership between all the partners. The firm can end by agreement, compulsion, a contingency, notice (partnership at will) or a Court order under Section 44. To answer, name the mode, then match the facts to it.

Understand Dissolution of Partnership Firm: Meaning and Modes

A partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all (Section 4). The persons are the partners, together they are the firm, and the name of the business is the firm name.

Section 39 says: the dissolution of partnership between all the partners of a firm is called the dissolution of the firm. So the whole firm comes to an end. Its business stops, assets are sold, debts are paid and accounts are settled.

Dissolution of the firm is different from dissolution of partnership. In dissolution of partnership, the relation between some partners changes, for example when a partner is admitted, retires or dies, but the remaining partners carry on the business. The firm continues in a new form. A firm is dissolved only when the partnership between all the partners ends.

The Act lets a firm end in several ways. Some are by agreement, by compulsion of law, on certain contingencies, or by notice where the partnership is at will. Two of them are in the text you must know well. Section 43 covers dissolution by notice of partnership at will. Section 44 covers dissolution by the Court at the suit of a partner.

After dissolution, accounts are settled under Section 48, and goodwill is dealt with under Section 55. This topic stops at meaning and modes. The settlement and the calculations come in the next topics of this chapter.

Key rules to remember

Dissolution of the firm (Section 39): Dissolution of the firm = dissolution of partnership between ALL the partners; If the business continues with some partners, it is a change in the partnership, not dissolution of the firm.
Notice for partnership at will (Section 43): Written notice by any partner to all other partners; dissolved from the date in the notice, or from the date of communication if no date is stated; Applies only where the partnership is at will. The notice must be in writing.
Court dissolution (Section 44): Grounds (a) to (g), at the suit of a partner; (a) unsound mind; (b) permanent incapacity; (c) prejudicial conduct; (d) wilful or persistent breach, or conduct making it not reasonably practicable to carry on; (e) transfer or charge or sale of whole interest; (f) business cannot be carried on save at a loss; (g) just and equitable.
Who is the 'other' partner in Section 44: Grounds (b) to (e): the defaulting partner must be 'a partner, other than the partner suing'; A partner cannot sue on the basis of his own incapacity, conduct, breach or transfer. Ground (a) can be brought by the next friend of the partner of unsound mind or by any other partner.
Settlement after dissolution (Section 48): Losses: first profits, next capital, lastly partners individually in profit-sharing ratio. Assets: (i) debts to third parties, (ii) partners' advances, (iii) partners' capital, (iv) residue in profit-sharing ratio; Subject to agreement by the partners.

How to solve Dissolution of Partnership Firm: Meaning and Modes questions

Use this method for theory questions and for short case-based questions on how a firm is dissolved.

1Read the facts and ask: is the partnership between all the partners ending, or does the business continue with some of them? Apply Section 39.
2If the business continues, call it a change in the partnership (admission, retirement, death), not dissolution of the firm.
3If the firm is ending, identify the mode: agreement, compulsion of law, contingency, notice, or Court.
4For notice, check that the partnership is at will and that the notice is written and sent to all other partners (Section 43). State the date of dissolution.
5For Court dissolution, find the matching ground in Section 44(a) to (g) and check who is suing. Grounds (b) to (e) apply to a partner other than the one suing.
6State the consequence: accounts are settled under Section 48 and goodwill under Section 55, subject to agreement or contract.
7Write a short conclusion that answers the exact question asked.

Quickest way: Three-question check

When to use it: For MCQs and short case questions where you have under two minutes.

Question 1: Does the partnership end between all partners? If no, it is not dissolution of the firm.
Question 2: Is the partnership at will and was a written notice given? If yes, Section 43.
Question 3: Is a partner asking the Court? Match the facts to the ground in Section 44 and check the 'other than the partner suing' condition.

Common mistakes in Dissolution of Partnership Firm: Meaning and Modes

Treating retirement or death of a partner as dissolution of the firm.
The word 'dissolution' sounds like the end of everything.
Fix: Apply Section 39. If the remaining partners continue, only the partnership changes. The firm is dissolved only when the partnership between all partners ends.
Saying a notice can be oral under Section 43.
Students remember 'notice' but forget the form.
Fix: Section 43 requires notice in writing to all the other partners.
Applying Section 43 to every partnership.
Students forget the condition in the opening words.
Fix: Section 43 applies only where the partnership is at will. Write the condition first.
Letting a partner sue on the ground of his own misconduct or incapacity.
The words 'other than the partner suing' are skipped.
Fix: For grounds (b) to (e), the default must be by a partner other than the one suing.
Missing the date of dissolution under a notice.
Students stop at 'the firm is dissolved'.
Fix: The firm is dissolved from the date named in the notice, or from the date the notice is communicated if no date is named.
Giving a section number for the order of payment as Section 44 or mixing up sections.
Several dissolution sections are close together.
Fix: Remember: 39 meaning, 43 notice, 44 Court, 48 settlement of accounts, 55 goodwill.

Worked examples

Example 1

Distinguish between dissolution of partnership and dissolution of the firm. Anil, Bela and Chetan are partners. Chetan retires and Anil and Bela continue the business. Has the firm been dissolved?

Show the solution

Dissolution of partnership is a change in the relation between partners. The business continues with the rest, for example on admission, retirement or death.
Dissolution of the firm, under Section 39, means dissolution of the partnership between all the partners. The business stops and accounts are settled.
In the case, Chetan leaves but Anil and Bela carry on the business together.
So the partnership between all three has ended, but the partnership between Anil and Bela continues.

Answer: Only the partnership is dissolved, not the firm. The firm is dissolved only when the partnership between all the partners ends (Section 39).

Example 2

Ravi, Sunil and Tara run a partnership at will in Pune. Sunil wishes to leave and close the firm. On 10 March he sends a written notice to Ravi and Tara saying he intends to dissolve the firm from 1 April. Separately, Tara has become permanently incapable of performing her duties and Ravi wishes to go to Court. Explain the position.

Show the solution

The partnership is at will, so under Section 43(1) any partner may dissolve the firm by written notice to all the other partners.
Sunil's notice is written and sent to both other partners.
Under Section 43(2), the firm is dissolved from the date mentioned in the notice, which is 1 April.
For Ravi's suit, Section 44(b) allows the Court to dissolve a firm where a partner, other than the partner suing, has become in any way permanently incapable of performing his duties as partner.
Tara is a partner other than Ravi, the partner suing, so the ground is available to Ravi. It is for the Court to decide on the facts.

Answer: The firm is dissolved from 1 April by Sunil's notice under Section 43. Ravi may also sue under Section 44(b) on Tara's permanent incapacity, as Tara is a partner other than the one suing.

Exam tips

Write the section number with the rule only for the sections you are sure of: 39, 43, 44, 48 and 55 are safe.
For MCQs, test the condition words: 'at will', 'in writing', 'other than the partner suing'.
In a 14-mark answer, list all grounds (a) to (g) of Section 44 in short form, then add one line on each.
Always draw the line between dissolution of partnership and dissolution of the firm. It is a favourite theory question.
Link to the next steps: mention settlement under Section 48 and goodwill under Section 55 in one line when asked about consequences.

Practice questions from Dissolution of Partnership Firms including Piecemeal Distribution

Dissolution of Partnership Firm: Meaning and Modes in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Dissolution of Partnership Firm: Meaning and Modes: frequently asked questions

What is the difference between dissolution of partnership and dissolution of firm?

In dissolution of partnership, the relation between some partners changes but the business continues with the others. In dissolution of the firm, the partnership between all the partners ends under Section 39, the business stops and accounts are settled.

Can a partner dissolve a firm by giving notice?

Yes, where the partnership is at will. Under Section 43, any partner may give written notice to all the other partners of his intention to dissolve. The firm is dissolved from the date in the notice, or from the date of communication if no date is stated.

What are the grounds for dissolution of a firm by Court?

Section 44 lists seven: unsound mind, permanent incapacity, prejudicial conduct, wilful or persistent breach, transfer or charge of a partner's whole interest, business that cannot be carried on save at a loss, and any just and equitable ground. The Court acts at the suit of a partner.

Who can sue for dissolution on the ground of a partner's unsound mind?

Under Section 44(a), the suit may be brought by any other partner or by the next friend of the partner who has become of unsound mind.