Which of the following statements are true or false?

Statement 1: A firm is compulsorily dissolved when a partner decides to retire.
Statement 2: Dissolution of a firm necessarily involves the dissolution of the partnership.
Statement 3: A firm is compulsorily dissolved when all partners or when all except one partner become insolvent.

Statements 2 & 3 are true and Statement 1 is false

The correct answer is option 2- Statements 2 & 3 are true and Statement 1 is false.

Statement 1: A firm is compulsorily dissolved when a partner decides to retire. THIS IS FALSE. Firm is not dissolved at the time of death or retirement, if the remaining partners decide to carry on business then they can continue business.

Statement 2: Dissolution of a firm necessarily involves the dissolution of the partnership. THIS IS TRUE. Dissolution of the firm leads to closure of business and firm. When there is no firm, there is no partnership. Dissolution of partnership leads to change in agreement between partners with continuation of business between partners. But when there is dissolution of firm, there is also dissolution of partnership because no business will carry on anymore.

Statement 3: A firm is compulsorily dissolved when all partners or when all except one partner become insolvent. THIS IS TRUE. 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.