Important consequences of dissolution are listed below:
1. Continuing liability of partners after dissolution (Sec. 45):
Notwithstanding the dissolution of a firm, the partners continue to be liable as such to third parties for any act done by any of them which would have been an act of the firm if done before the dissolution, until public notice is given of the dissolution.
ADVERTISEMENTS:
The notice may be given by the firm or any partner. It must be given to the Registrar of Firms, in case of registered firms, in the local Official Gazette and in at least one vernacular newspaper circulating in the district where the firm’s principal place of business is situated (Sec. 72).
In the absence of public notice of dissolution, however, the estate of a partner, who dies, or who is adjudicated an insolvent, or in case of a retiring partner, who is not known to the outside world to be a partner, is not liable for acts done after the date on which he ceases to be a partner.
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2. Continuing authority of partners for purposes of winding up (Sec. 47):
ADVERTISEMENTS:
After the dissolution of the firm the authority of each partner to bind the firm, and other mutual rights and obligations of the partners, continue so far as may be necessary for the following two purposes:
(a) To wind up the affairs of the firm, e.g., disposing of the property, realising amount due from debtors and paying to creditors and so on; and
(b) To complete transactions begun but unfinished at the time of the dissolution, e.g., taking delivery of the goods ordered before dissolution and paying for them.
The firm, however, is not bound by such acts of a partner who has been adjudicated insolvent.
ADVERTISEMENTS:
3. Right of partners to enforce winding up (Sec. 46):
On the dissolution of a firm every partner or his representative is entitled to have the property of the firm realised and applied in payment of the debts and liabilities of the firm, and to have the surplus distributed among the partners or their representatives according to their rights.
4. Liability to share personal profits (Sec. 50):
So long as the affairs of the dissolved firm are in process of winding up, it is still the duty of every partner not to make any personal profit out of transactions concerning the firm. A partner, therefore, must account to the firm for every benefit so derived by him and must share it with other partners.
5. Return of premium (Sec. 51):
Where a partner has paid a premium on entering into partnership for a fixed term, and the firm is dissolved before the expiration of that term, such a partner shall be entitled to repayment of ‘rateable amount of premium’ for the unexpired period except where the dissolution has been caused:
(a) By the death of a partner;
(b) By the misconduct of the partner so admitted; or
(c) By mutual agreement of all the partners containing no provision for the return of premium.
6. Rights where partnership contract is rescinded for fraud, etc. (Sec. 52):
A contract of partnership like any other contract may be rescinded on the ground of fraud or misrepresentation. The partner misled also has a right to claim damages for fraud. This Section grants the following further rights to the partner thus rescinding the contract:
(a) He has a right of lien on the surplus of the assets of the firm remaining after the debts of the firm have been paid, for any sum paid by him for the purchase of a share in the firm and for any capital contribution by him.
(b) He is entitled to rank as a creditor of the firm in respect of any payment made by him towards the debts of the firm.
(c) He has also the right to claim indemnity from the partners guilty of the fraud or misrepresentation against all the debts of the firm.
7. Right to impose restrictions:
In the absence of an agreement to the contrary, each partner or his representative is entitled to restrain the other partners from carrying on a similar business in the name of the firm or from using the property of the firm for their own benefit, until the affairs of the firm have been completely wound up.
However, where a partner or his representative has bought the goodwill of the firm he can use the firm name. (Sec. 53)
Further, the partners in anticipation of or upon dissolution of the firm can agree that some or all of them will not carry on a business similar to that of the firm within a specified period or within specified local limits.
Such an agreement shall be valid and not void on the ground of restraint of trade, if the restrictions imposed are reasonable. (Sec. 54).