Question

Messrs Addo Mensah, Joe Nkansah and Prosper Afenyo were good friends and decided to form a Partnership business called AKA partners. They contributed towards the capital of the firm in the ratio 1:1:1. The firm was duly registered and issued with a certificate of registration. The partners share profits and losses equally. After operating for ten (10) years, the partners do not trust each other and they have agreed to go their separate ways. The partners have come to you for advice. Explain to them the various ways and processes that the firm can be dissolved. 15marks.

Answer 1

Circumstances for dissolution of partnership firm:

• On expiry of term of partnership as per agreement of partnership.
• Partners agree mutually to dissolve the firm.
• Retirement or death of any or all of the partners.
• Any or all of the partners declared insolvent.
• The business carried out by firm is declared as illegal by court.
• Transfer of a control and interest in the firm by a partner to a third party.

Ways of dissolution of partnership:

• By court - The partners may file a suit in a court for dissolution of partnership. Further, the grounds of suit filed must be stated to initiate the proceedings. The grounds may be any of these like misconduct of partners, breach of contract, partner becoming insolvent etc.
• By notice to the other partner/s - Any of the partners may give notice in writing for the dissolution of partnership along with the reason stated in it.
• By agreement/deed - The partners may form a deed or agreement to dissolve the firm with mutual consent or even with the end of the term of partnership.
• By order of Compulsory Dissolution - If it is observed that the activities of partnership are against public interest, harmful or illegal, the court may order compulsory dissolution.
• By natural events - That is by expiry of the term of Partnership agreement, or death or upon retirement of all or any of the partners.

In such a case, the accounts of the partners are settled as on the date of dissolution of partnership, profits or losses may be ascertained, all expenses must be paid and after recovering firms losses amount if any left will be distributed among partners in profit sharing ratio.