DISSOLUTION OF PARTNERSHIP
Dissolution of partnership refers to a modification in the partnership agreement with reference to relations among partners. In fact, it is a reorganization of partnership under which composition of partners is changed. The change may result from increase or decrease in the number of partners. The increase takes place by admission, while the decrease by retirement, death, insanity, or insolvency, etc. of an existing partner.
Or if in a firm of partners A, B, and C a new one, D, is admitted, in this case too, the partnership will be dissolved and the firm will be reorganized by drawing up a new agreement now among partners A, B. C, and D.
It must be borne in mind that the dissolution of partnership never refers to the dissolution of the firm. The former is the change or recomposition or rearrangement of partnership. The dissolution of the firm calls for putting an end to the partnership business, and brings an end to the relation among all partners.
A dissolution of partnership may, however, result in the dissolution of the firm too if all the partners agree to it. In such a case business will cease to exist.
To sum up, the dissolution of partnership may or may not dissolve the firm. On the other hand, dissolution of the firm automatically entails the dissolution of the partnership.