Partnership firm is the business entity that is formed with a sole purpose of profit from business. Two or more parties come together with a formal agreement (known as Partnership Deed) to own and manage the business. Once the purpose is met or after the partners decide to put in end to the partnership it needs to be dissolved and the partnership comes to an end. On dissolution of the firm, the business of the firm ceases to exist since its affairs are would up by selling the assets and by paying the liabilities and discharging the claims of the partners. The dissolution of partnership among all partners of a firm is called dissolution of partnership firm. This is usually done through a dissolution agreement between the partners.
When a dissolution is initiated by one partner by suing the other then the courts get involved. But a court can dissolve the firm only if it is registered with the registrar of firms. Hence an unregistered partnership firm can’t be dissolved by the court. The court may intervene and help in the dissolution in situations where one partner becomes incapable to carry out his duties due to incapability, or unsoundness of mind, if a partner is guilty of misconduct that can harm the business, repeated breach of the partnership agreement by a partner. In these situations the court may get involved and help the partnership get dissolved legally.
Usually, partnership firms are dissolved through dissolution agreements between the concerned partners. All the partners come together and sign an agreement confirming such a dissolution and mutually settling all the pending liabilities and accounts among them. Hence there is no need of any third party intervention. This may occur for various reasons like insolvency of partner/partners, or Unlawful business carried on in the name of the partnership firm by one of the partner. In case the term of the decided partnership expires or the task for which the partnership was created is finished, Death of one of the partners and resignation of a partner. It can also be dissolved by a notice of dissolution sent by one partner in written to all other partners.