A partnership firm is dissolved compulsorily in the following cases:
(A) when all the partners or all but except one partner, become insolvent, rendering them incompetent to sign a contract;
(B) When the business of the firm becomes illegal
(C) Change in existing profit sharing ratio among partners
(D) 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.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (A), (B) and (D) only
Compulsory dissolution happens by law itself, whatever the partners want: the firm must close when its partners can no longer contract or when its business can no longer be carried on lawfully.
(A) when all the partners or all but except one partner, become insolvent, rendering them incompetent to sign a contract; Correct. Insolvent partners cannot enter into contracts, so the firm cannot go on.
(B) When the business of the firm becomes illegal Correct. A firm cannot carry on a business that the law has made illegal.
(C) Change in existing profit sharing ratio among partners Incorrect. A change in ratio is a reconstitution; it ends the old partnership agreement but the firm continues.
(D) 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. Correct. An event that makes the partnership itself unlawful forces the firm to dissolve.
NCERT (2026-27 edition): |