Theory question 102
Partnership Admission, Retirement and Dissolution(a) Explain five events that may lead to the dissolution of a partnership.
(b) State how the proceeds from dissolution of partnership are applied.
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(a) Any five, explained:
- Expiry of the fixed period, or completion of the venture, the partnership was formed for.
- Death of a partner.
- Bankruptcy or insolvency of a partner, or of the firm.
- Retirement or withdrawal of a partner (notice to dissolve a partnership at will).
- Mutual agreement of the partners to end the business.
- Insanity or permanent incapacity of a partner.
- The business becoming illegal.
- Court order, e.g. persistent quarrels or continuous losses.
- Conversion into a limited company or amalgamation with another firm.
(b) Order of applying the proceeds (Partnership Act):
1. Pay the expenses of dissolution (realisation expenses).
2. Pay outside creditors (debts and liabilities to non-partners).
3. Repay partners' loans/advances to the firm.
4. Repay partners' capital; any balance left is shared in the profit-sharing ratio.
Part (b) is about order: outsiders first, then partners' loans, then capital.