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

(C) when the business of the firm is earning a large amount of profit

(D) when some event has taken place which makes it unlawful for the partners to carry on the business of the firm in partnership

Choose the correct answer from the options given below:

(A), (B) and (D) only

The correct answer is option 1- (A), (B) and (D) only.

(A) when all the partners or all but one partner, become insolvent, rendering them incompetent to sign a contract- Compulsory Dissolution

(B) when the business of the firm becomes illegal- Compulsory Dissolution

(C) when the business of the firm is earning a large amount of profit- It is not any case of dissolution.

(D) when some event has taken place which makes it unlawful for the partners to carry on the business of the firm in partnership- Compulsory Dissolution

Compulsory Dissolution: A firm is dissolved compulsorily in the following cases:

• (1) when all the partners or all but one partner, become insolvent, rendering them incompetent to sign a contract;
• (2) when the business of the firm becomes illegal; or
• (3) 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.