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How to Dissolve the Partnership Firm Permanently?

Rahul Gupta (Chartered Accountant) (644 Points)

10 March 2011

There are 2 Partners carrying on a Partnership Business of Computer Education Institute. They want to wind up the business completely. In order to do so, they have to Dissolve the Partnership Firm Completely.

I want to know the exact procedure that how the Partnership Firm will be Dissolved. As per my knowledge, the Dissolution Deed is to be signed by each partners.

But I want to know the exact and Valid Legal Procedure for Dissolving the Partnership Firm. i.e. whether it needs to be attested by Notary or not, etc.

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10 Replies

CA. ANKUR JAIN (CA.....) (2800 Points)
Replied 11 March 2011

Yes you need to get signed a dissolution deed by all the partners and yes notry is must........

Further i think you need to surrender your firm's PAN with A.O alongwith a copy of dissolution deed....

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Rahul Gupta (Chartered Accountant) (644 Points)
Replied 11 March 2011

Thanks for the reply dear, but i want to enquire one thing more.

That was i have already told you to that the Partnership Firm will be dissolved and 1 partner wants that the business will be continued in Proprietorship. Actually partners are the real family members. In order to avoid heavy tax @ 30% on Partnership they want to continue the business under proprietorship.

As they will start the business under Proprietorship w.e.f 01.04.2011 and accordingly the books will be maintained.

My main question is that when the opening entry will be passed along with capital than how to value the Assets. As i have told that it's a Computer Institue and their main assets are Furniture, Computer, Air Conditioner & Alluminium Fittings. How to value these in opening entries. What will be the amount taken and on what basis.

plz.. help

CA. ANKUR JAIN (CA.....) (2800 Points)
Replied 11 March 2011

You shall value the assets on FAIR VALUE BASIS on dissolution....

(simply you can say the written down value as on 31-3-11 in firm's book is fair value as on 01--4-11..)

so transfer the assets on same value at which they are in books.

And you can refer section 45 of income tax act for tax purpose....Which says that FMV of the assets will be deemed as sale consideration and accordingly in your case (as i said WDV=FMV) there will be NO TAX.

Further about capital, the partner going to continue the business will pay other partners share and show it as his capital introduction.

Rahul Gupta (Chartered Accountant) (644 Points)
Replied 11 March 2011

I agreed with you. But i am in little bit different situation. Kindly resolve the current situation which i am going to present you.

Mr. A is doing a business under proprietorship and he is not maintaining any Books of Accounts. But lateron after some years has been past, he wants to maintain his books w.e.f. 1st April. He has some assets and as when he will start maintaining books it needs to pass the opening entry and consequently the values of the assets will be entered.

Than is it possible that assets can be valued at FMV (Fair Market Value) and if we do so than is there any need to have some documentary proof so that if any Tax official ask that how the assets was valued and what was the authenticity.

FMV is decided by the Proprietor himself or by anybody else.

Tareq Imam (CA LLB CISA DISA) (170 Points)
Replied 18 April 2011

If it's a registered firm then you need to do the following

1. write a dissolution deed

2. give paper advertisement in minimum two local news papers

3. get it published in the official gazette

4.submit all these along with nil balance sheet to the registrar of firms

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Tarun Goel (Student) (76 Points)
Replied 05 December 2012

in case of two partners in which one of them carry business in proprietorship then what we done???

singhal (ARTICAL) (22 Points)
Replied 15 August 2013

now i also want to dissolve a partnership firm which is registered before six month it was regisred as a coching institute but due to any reason we are unable to get start coching. so now i want to dissolve it i havr not applied for pan card till now. so any body can tell me what is the legal procedure to dissolve it