DISSOLUTION OF FIRMS( SECTION 39-47)MEANING OF DISSOLUTION- the term dissolution stands for dis continuation. Under the Indian partnership act, 1932, the dissolution may be either of partnership or of a firm.

Meaning of Dissolution of Partnership- Dissolution of Partnership the change in the existing relations f the partners. The firm continues its business after being reconstituted. This may happen on admission, retirement or death of a partner or change in the profit sharing ratios of the firm. For e.g.: X, Y and Z are partners in a firm and X retires, the partnership between X, Y and Z comes an end and new partnership between Y and Z comes into existence. This new partnership between Y and Z shall be known as reconstituted firm. Thus o retirement of partner the old partnership stands dissolved, but the firm continues its business with the remaining partner Y and Z.

Meaning of dissolution of firm- dissolution of firm means dissolution of partnership between all the partners of the firm. In such a situation, the business of the firm is discontinued, its assets are realized, the liabilities are paid off and the surplus (if any) is distributed among the partners according to their rights.

Distinction between dissolution of partnership and dissolution of firm:

basis dissolution of partnership dissolution of firm:Old partnership comes to an end and new partnership comes into an existence

Old partnership comes to an end but no new partnership comes to existence.

Constitution of business under firms name

The business continues under firms name

The business does not continue under firms name

Revaluation v/s realization Revaluation a/c is prepared Under firm’s dissolution, realization a/c is prepared.

Thus dissolution of firms involves dissolution of partnership but dissolution of partnership may not lead to dissolution of firm.