A partnership firm is said to be dissolved when all the partners terminate their connections with the firm and cease to carry on the business.
As per Indian Partnership Act, 1932 Dissolution of a firm means “Dissolution of Partnership between all the partners of a firm”.
Distinction between dissolution of a partnership and a firm
The Indian Partnership Act, 1932 makes a distinction between “Dissolution of a partnership” and “Dissolution of a firm”.
A partnership is dissolved whenever there is change in the partnership agreement e.g., when a new partner is admitted or one of the old partners retires. It is only to terminate the relationship by the cancellation of existing agreement.
Dissolution of partnership does not necessarily result in dissolution of the firm but dissolution of the firm always results in the dissolution of partnership. Dissolution of a firm means dissolution of partnership between all the partners of the firm. If a firm is dissolved, business of the firm comes to an end but in the case of dissolution of partnership the business will continue to exist.