Compulsory dissolution
🔹 Compulsory Dissolution of a Partnership
Compulsory dissolution refers to the forced termination of a partnership due to specific legal or external circumstances, regardless of the partners’ wishes. It happens automatically or by legal order when certain events occur.
🔍 Definition
Compulsory dissolution occurs when a partnership is legally required to dissolve because of circumstances that make the continuation of the business unlawful, impossible, or impractical.
🔹 Common Grounds for Compulsory Dissolution
Illegality of the Business
If the partnership’s business becomes unlawful (e.g., due to changes in the law or regulation).
Example: A cannabis business is forced to dissolve if laws change and make the sale of cannabis illegal in that jurisdiction.
Death of a Partner (unless otherwise agreed)
In many jurisdictions, the death of a partner automatically dissolves the partnership unless the agreement states it will continue.
Insolvency or Bankruptcy
If the partnership or a partner is declared bankrupt or insolvent, the partnership may be compulsorily dissolved.
Court Order (Judicial Dissolution)
A partner or creditor may apply to the court to dissolve the partnership due to:
Misconduct or incapacity of a partner.
Deadlock between partners.
Persistent breach of the partnership agreement.
Losses making it unreasonable to continue.
Completion of a Particular Undertaking
If the partnership was formed for a specific purpose, it automatically dissolves when that purpose is achieved.
🔹 Legal Basis (Examples by Jurisdiction)
U.K.: Under the Partnership Act 1890, Section 33–35.
U.S.: Under the Uniform Partnership Act (UPA) or Revised UPA (RUPA).
Philippines: Under the Civil Code, Articles 1830–1831.
India: Indian Partnership Act, 1932, Section 41–44.
🔹 Consequences of Compulsory Dissolution
The partnership must wind up its affairs:
Cease business operations.
Pay debts and liabilities.
Distribute remaining assets to partners.
Partners remain liable for obligations incurred before dissolution.
✅ Summary Table
| Ground | Effect on Partnership |
|---|---|
| Business becomes illegal | Must dissolve |
| Death of a partner | Automatic dissolution (unless agreed otherwise) |
| Bankruptcy of a partner/entity | Dissolution may be required |
| Court order | Dissolution enforced |
| Completion of a specific purpose | Automatically ends |
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