Accountancy Part ADissolution of Partnership Firm

When the business of the partnership firm becomes illegal, it leads t…

When the business of the partnership firm becomes illegal, it leads to dissolution of the firm under:

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → Compulsory dissolution

NCERT (2026-27 edition):
Dissolution of a Firm – “… 2. Compulsory Dissolution: A firm is dissolved compulsorily in the following cases: (a) when all the partners or all but one partner, become insolvent, rendering them incompetent to sign a contract; (b) when the business of the firm becomes illegal; or (c) when some event has taken place which makes it unlawful for the partners to carry on the business of the firm in partnership, e.g., when a partner who is a citizen of a country becomes an alien enemy because of the declaration of war with his country and India.”