A firm is dissolved compulsorily in the following cases:
A. When a partner becomes insane
B. When the business of the firm becomes illegal
C. When all the partners or all but one partner become insolvent
D. When a partner becomes permanently incapable of performing his duties as a partner
E. When some event has taken place which makes it unlawful for the partners to carry on the business
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → B, C and E only
Compulsory dissolution happens by law, without any court order; dissolution on a partner’s insanity or incapacity needs a court order.
A. When a partner becomes insane — False. It is a ground for dissolution by court.
B. When the business of the firm becomes illegal — True. The firm is dissolved compulsorily.
C. When all the partners or all but one partner become insolvent — True. They can no longer contract, so the firm is dissolved compulsorily.
D. When a partner becomes permanently incapable of performing his duties as a partner — False. This too is a ground for dissolution by court.
E. When some event has taken place which makes it unlawful for the partners to carry on the business — True. The firm is dissolved compulsorily.
NCERT (2026-27 edition):
NCERT (2026-27 edition):
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