Difference Between Dissolution of Firm and Dissolution of Partnership
Partnership and firm are two different forms of business structures. While partnership is a form of business structure where two or more individuals pool their resources together to run a business, a firm is an entity that is established to carry on a business activity.
Both the partnership and firm structures are not permanent and can be dissolved due to several reasons. However, the process of dissolution differs in both these structures.
What is Dissolution of Firm?
Dissolution of firm refers to the legal process of ending the existence of a firm. It can happen due to several reasons such as bankruptcy, insolvency, retirement or death of a partner, change in business environment, or mutual agreement between the partners.
In the case of dissolution of a firm, all the business activities are discontinued completely, and the assets of the firm are liquidated to pay off the liabilities. The partners are liable for the debts of the firm and are required to contribute their share towards the payment of debts.
The dissolution of a firm is managed by the Partnership Act, and the liquidation process is carried out by the appointed liquidator.
What is Dissolution of Partnership?
Dissolution of partnership refers to the legal process of terminating the partnership agreement. It can happen due to several reasons such as mutual agreement between partners, bankruptcy or insolvency of the partnership, death or retirement of one of the partners, or expulsion of one of the partners.
In the case of dissolution of partnership, the partnership agreement is terminated, and each partner takes their share of the partnership assets and liabilities based on their agreed profit-sharing ratio. However, the assets may not be sufficient to pay off all the liabilities, and the partners may be required to contribute towards the payment of debts.
The dissolution of partnership is governed by the Partnership Act, and the process is usually carried out through a mutual agreement between the partners.
Key Differences Between Dissolution of Firm and Dissolution of Partnership
- Dissolution of firm means the complete end of the business entity, while dissolution of partnership means the end of the partnership agreement.
- In the case of dissolution of firm, the assets are liquidated to pay off the liabilities, while in the case of dissolution of partnership, each partner takes their share of the assets and liabilities.
- The dissolution of a firm requires a liquidator to manage the process, while dissolution of partnership can be carried out through a mutual agreement between the partners.
In conclusion, both the dissolution of firm and dissolution of partnership are legal processes that are governed by the Partnership Act. However, the process differs in terms of liquidation of assets, appointment of a liquidator, and termination of partnership agreement. Understanding the differences between these two concepts is essential for anyone involved in either of these business structures.
Table difference between dissolution of firm and dissolution of partnership
I’m sorry, as an AI language model, I don’t have the capability to create a visual HTML table. However, I can provide you with a written comparison between dissolution of firm and dissolution of partnership.
Dissolution of Firm vs Dissolution of Partnership
| Dissolution of Firm | Dissolution of Partnership |
|———————|—————————-|
| A firm is a business entity consisting of two or more partners who run the business together. | A partnership is a type of business entity where two or more people join together to conduct a business for profit. |
| Dissolution of firm means the end of a partnership between the partners where the business is permanently shut down. | Dissolution of partnership refers to the ending of the partnership between the two partners. |
| In case of dissolution of firm, all the assets and liabilities of the firm are required to be settled, and the partners are entitled to receive their respective share in the partnership. | In case of dissolution of partnership, the partners need to settle all the liabilities and distribute the remaining assets among themselves. |
| The dissolution of the firm is governed by the Partnership Act, and the partners need to follow the legal proceedings and formalities to dissolve the firm. | The dissolution of partnership is also governed by the Partnership Act and requires the mutual agreement of the partners. |
| In case of dissolution of firm, the partners do not have the option to continue the business as the firm is closed permanently. | In case of dissolution of partnership, the partners can decide to continue the business after the dissolution with a new partnership agreement. |
| Dissolving a firm can lead to the loss of goodwill and reputation which has been built over time. | Dissolving a partnership can also lead to the loss of goodwill and reputation, but it is comparatively easier to re-establish the business with a new partnership. |
Note: This table is for illustrative purposes only, and there may be other differences between dissolution of firm and dissolution of partnership depending on the circumstances and the jurisdiction.