What is the procedure for dissolving a partnership firm?

The procedure for Dissolution of a firm is as follows:

1) In the process of dissolution, the following accounts are opened in order to close the books. Accounts in the firm are settled as per the rule of Indian Partnership Act, 1932:

• a) Realization Account

• b) Partner's loan account

• c) Partner's Capital account

• d) Cash or book account

2) In settling the accounts of a firm after dissolution, the following rules shall be observed subject to agreement by the partners -

A - Losses including deficiencies of capital shall be paid first out of profits, next out of capital and lastly if necessary by the partners individually in the proportions in which they were entitled to share profits.

B - The assets of the firm including any sums contributed by the partners to make up deficiencies of capital shall be applied in the following manner and order:

• a) In paying the debts of the firm to the third parties,

• b) In paying to each partners rateably what is due to him from the firm for advance as distinguished from capital,

• c) In paying to each partner rateably what is due to him on account of capital and

• d) The deposit if any shall be divided among the partners in the proportions in which they were entitled to share the profit.

The Partners may also enter into agreement to dissolve the firm.

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