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All about dissolution or closure of Partnership Firm

Dissolution of a Partnership Firm:

Dissolution of the partnership firm refers to the situation where all the relation between a firm and its partners comes to an end. It is the discontinuation of a business due to the dissolving of a firm. Closing a partnership Firm is a little complex. For dissolving a partnership, we need to check the dissolution clause mentioned in the partnership Firm. In this article, we will discuss all about dissolution or closure of Partnership Firm.

Below mentioned are the reasons for the dissolution of the partnership firm:

  1. Dissolution by Court: dissolution by the court on account of the partner becoming a lunatic, indulged in illegal activities, found guilty of misconduct, incapable to perform duties, or dissolution reason found justified.
  2. Dissolution by agreement: dissolution by agreement can be with the mutual consent of all the partners or a contract between all partners. If a partnership firm dissolves by mutual consent or agreement, then you can also file the partnership firm dissolution deed.
  3. Dissolution by operation of law: dissolution become compulsory when all the partners become insolvent or any changes in government policies make the business illegal.
  4. Dissolution on the happening of certain contingencies: dissolution that is based on certain conditions such as a fixed period, purpose, death of a partner, or insolvency of a partner/partners.
  5. Dissolution by notice: dissolution by a written notice given by a partner with the intention to dissolve the partnership firm. Any partner can give termination notice to dissolve the partnership firm intentionally.

There can be several reasons and circumstances which can bring an end to the partnership firm. When this dissolution happens, the share of profit and losses amongst the partners is equal. If a partnership firm has two partners only and one partner out of two partners dies or becomes permanently disabled, then the partnership firm will automatically dissolve.


  1. Surrender PAN/TAN Card due to the dissolution of Partnership Firm:

In case the partnership firm is being shut down or dissolved, the PAN card issued in the name of the partnership firm must be surrendered. The PAN card can be surrendered online by visiting the NSDL TIN website and filling out form 49A. Enter the PAN number to be cancelled in item 11 of the form.

 Online Process to Surrender of Partnership firm PAN Card

  • Go to the NSDL TIN website.
  • File Form 49A online.
  • Once you submit the form, you will get an acknowledgment.
  • Print the acknowledgment & send it to the NSDL office address mentioned in the form along with the necessary documents.
  1. Surrender GST registration due to the dissolution of Partnership Firm:

In case of the discontinuation of a business (partnership firm) due to the dissolving of a firm. You need to Cancel your GSTIN or Surrender the GST Registration.

Online Process to Surrender of Partnership firm GSTIN

If the Partnership firm is registered under GST, it is compulsory to surrender the registration before dissolving the Partnership Firm to avoid the tax compliance filing burden and an additional fee or fines.

  • Login into your account on GST.GOV.IN.
  • Go to Services >> Registration >> Application for Cancellation of Registration.
  • Fill in the basic details and address for future communication or select the option of Address same as above and then go to the Cancellation Details tab.
  • Select the valid reason (discontinuance of business/closer of business) for cancellation and the date of cancellation. Below this page is showing the date for which, you have already filed a return.
  • Go to the verification tab and verify using EVC or Digital signature and your ARN will be generated.
  1. Settlement of accounts after a partnership firm is dissolute as per section 48 of partnership act, 1932:

when a partnership firm is dissolved, it is compulsory to settle all accounts, assets are sold off and liabilities are paid off. The amount which is received on the sale of assets should be used for paying off all external expenses and liabilities. And loans and advances that are owed to the partner should be cleared and the capital of all the partners should be paid off. In case any amount that is still after paying off all these items should be distributed among partners of the dissolute firm in their original profit-sharing ratio.

In case of loss and capital deficiency, adjust loss and capital deficiency against the profit of the firm. If there exist any losses or deficiencies after all the adjustments, the losses will be bear by all the partners as per the individual profit-sharing ratio.

  1. Cancellation of Shop and Establishment registration

Since Shop & Establishment Registration is allotted by the Labour Department of the State and in many states, it is compulsory to pay renewal fees. You must cancel the Shop & Establishment Registration before dissolving the Partnership firm to escape renewal fee & non-compliance taxes.

  1. Surrender of Trade License

Since Trade License is permitted by the local municipal corporation and needs to renew every year on or before 31st March of a financial year with a fixed renewal fee. In case the partnership firm is being shut down or dissolved, it is always advisable to cancel the registration.

  1. Closure of business’s current bank account

You have to close your business’s current bank account otherwise it would attract a penalty, depending on the bank’s policy. To close a bank account of a partnership firm, that partnership firm will have to submit an application form in the format prescribed by the bank. Along with the application form, you will have to submit some of the supporting documents as required by the bank.

  1. Withdrawal of Trademark

Any of the firm’s partners can submit the letter of Withdrawal to the concerned Registry of Trademark to avoid renewal and other penalties.

We are prominent Chartered Accountants in Ahmedabad and designated partners in K M GATECHA & CO LLP. We offer services in Ahmedabad and other major cities in India. In case you are puzzled about the dissolution of the Partnership Firm, feel free to consult the experts at K M GATECHA & CO LLP. You can get comprehensive assistance and the best services on income tax Returns Filing online and offline. You can also clear your doubts by simply calling us at +91 8000057972 or emailing us the same at [email protected] .


  • By Agreement (Section 40)
  • Compulsory Dissolution (Section 41)
  • On the happening of certain contingencies (Section 42)
  • By notice of partnership at will (Section 43) 
  • Insanity/Unsound mind.
  • Persistent Breach of the Agreement.
  • Transfer of Interest.

Dissolution of the partnership firm refers to the situation where all the relation between a firm and its partners comes to an end. It is the discontinuation of a business due to the dissolving of a firm.