The correct answer is option 4- Dissolution by Agreement.
When a firm is dissolved with the consent of all the partners, it is called Dissolution by Agreement.
Dissolution by Agreement: A firm is dissolved : (a) with the consent of all the partners or (b) in accordance with a contract between the partners.
OTHER OPTIONS
- 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.
- Dissolution by Notice: In case of partnership at will, the firm may be dissolved if any one of the partners gives a notice in writing to the other partners, signifying his intention of seeking dissolution of the firm.
- Dissolution by Court: At the suit of a partner, the court may order a partnership firm to be dissolved on any of the following grounds:
(a) when a partner becomes insane;
(b) when a partner becomes permanently incapable of performing his duties as a partner;
(c) when a partner is guilty of misconduct which is likely to adversely affect the business of the firm;
(d) when a partner persistently commits breach of partnership agreement;
(e) when a partner has transferred the whole of his interest in the firm to a third party;
(f) when the business of the firm cannot be carried on except at a loss; or
(g) when, on any ground, the court regards dissolution to be just and equitable.
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