21 October 2010
As per proviso to section 187(2) dissolution by way of death of partner does not tantamount to change in constitution. so my question- whether the firm will be liable for filing only one return or more.
22 October 2010
The firm stands dissolved. Therefore, change in constitution does not arise because the firm does not exist after death of one among two. Two returns has to be filed, one in the status of firm up to the date of death and the other in individual capacity from the next date to year end.
09 August 2024
In the context of a partnership firm, **dissolution** and **change in constitution** refer to different processes affecting the partnership. Here’s a detailed explanation of each:
### **1. Dissolution of Partnership**
**Definition:** Dissolution of a partnership occurs when the partnership firm ceases to exist as a legal entity. This process involves the termination of the firm’s business operations and the settlement of accounts among the partners.
**Key Points:**
- **Complete Termination:** The firm ceases to operate as a business. All assets are liquidated, and liabilities are settled. - **Procedure:** Includes the sale of assets, settlement of liabilities, and distribution of remaining assets among the partners. - **Legal Requirement:** A dissolution deed is often drafted to document the terms and conditions of dissolution, including how assets and liabilities are to be distributed. - **Impact on Partners:** The firm is legally dissolved, and the partners might decide to form a new partnership or continue their business individually or through a different structure. - **Examples:** - A partnership firm is dissolved due to the expiration of the partnership term. - A firm is dissolved due to mutual agreement among partners or due to the insolvency of the firm.
### **2. Change in Constitution**
**Definition:** A change in constitution refers to modifications in the structure or terms of an existing partnership without dissolving the firm. It involves alterations such as adding or retiring partners, changing profit-sharing ratios, or modifying other terms of the partnership deed.
**Key Points:**
- **Modification, Not Termination:** The partnership continues to exist, but its internal structure or terms change. - **Procedure:** Involves preparing a supplementary partnership deed or amending the existing partnership deed to reflect the changes. - **Legal Requirement:** The changes must be documented, and the updated partnership deed should be executed and signed by all partners. - **Impact on Partners:** Existing partners continue their association with the firm, and new or retiring partners are accommodated based on the revised terms. - **Examples:** - Adding a new partner to the firm. - Changing the profit-sharing ratio among the existing partners. - A partner retiring, but the firm continues with the remaining partners or with new partners joining.
### **Comparison**
| **Aspect** | **Dissolution of Partnership** | **Change in Constitution** | |----------------------|--------------------------------------------------|--------------------------------------------------| | **Nature** | Complete termination of the firm | Modification of the existing partnership | | **Impact** | Firm ceases to exist; new firm might be formed | Firm continues to operate with revised terms | | **Procedure** | Liquidation of assets, settlement of liabilities| Amend or draft a new partnership deed | | **Legal Document** | Dissolution deed | Supplementary deed or amendment | | **Partners** | Partners may exit or form a new firm | Partners are added, retired, or have altered terms|
### **Example Scenarios**
**Dissolution:**
- **Scenario:** A firm, M/s ABC & Co., decides to close its operations due to the retirement of all partners. They liquidate assets, settle liabilities, and the firm is officially dissolved. The dissolution deed outlines the process of how remaining assets are distributed among the partners.
**Change in Constitution:**
- **Scenario:** M/s XYZ & Co., with partners A, B, and C, decides to add a new partner, D. They prepare a supplementary partnership deed to include D and update the profit-sharing ratio. The firm continues to operate as M/s XYZ & Co. with the new constitution.
In summary, **dissolution** signifies the end of the firm’s existence, while a **change in constitution** involves modifications within the existing framework of the firm. Each process has its own legal and procedural requirements based on the nature and extent of changes or termination.
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