Following are various reasons for which a partnership firm can be dissolved. Which of the following will lead to compulsory dissolution?
A. With consent of all partners.
B. When business becomes illegal.
C. When a partner dies.
D. When all partners become insolvent.
E. When a partner becomes insane.
Choose the correct answer from the options given below :
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → B, D only
A firm is dissolved compulsorily only when all (or all but one) partners become insolvent, when the business becomes illegal, or when an event makes it unlawful to carry it on. The other cases are dissolution by agreement, on a contingency, or by the court.
(A) With consent of all partners. — False. This is dissolution by agreement, not compulsory dissolution.
(B) When business becomes illegal. — True. An illegal business cannot go on, so the firm must be dissolved.
(C) When a partner dies. — False. Death dissolves the firm only on the happening of a contingency, subject to the contract between the partners.
(D) When all partners become insolvent. — True. Insolvent partners cannot enter into a contract, so the firm is dissolved compulsorily.
(E) When a partner becomes insane. — False. Insanity is a ground on which the court may order dissolution.
NCERT (2026-27 edition):
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