ABC & Co. a partnership firm is going to be dissolved. The partners seek your advice on the following points referring to the relevant…

Provisions of Law: (i) Right of partners to have business wound up after dissolution (Section 46 of the Indian Partnership Act, 1932): On the dissolution of a firm, every partner or his representative is entitled, as against all the other partners or their representative, to have the property of the firm applied in payment of the debts and liabilities of the firm, and to have the surplus distributed among the partners or their representatives according to their rights. This means every partner has a right to ensure that the firm's debts are paid first from firm assets and only then, the remaining surplus is distributed. This right is enforceable against co-partners. (ii) Continuing authority of partners for purposes of winding up (Section 47): After the dissolution of a firm, the authority of each partner to bind the firm and the other mutual rights and obligations of the partners, continue notwithstanding the dissolution, so far as may be necessary to wind up the affairs of the firm and to complete transactions begun but unfinished at the time of the dissolution, but not otherwise. Provided that the firm is in no case bound by the acts of a partner who has been adjudicated insolvent; but this proviso does not affect the liability of any person who has after the adjudication represented himself or knowingly permitted himself to be represented as a partner of the insolvent. (iii) Mode of Settlement of partnership accounts (Section 48): In settling the accounts of a firm after dissolution, the following rules shall, subject to agreement by the partners, be observed: - (A) Losses, including deficiencies of capital, shall be paid first out of profits, next out of capital, and lastly, if necessary, by the partners individually in the proportions in which they were entitled to share profits; (B) The assets of the firm, including any sums contributed by the partners to make up deficiencies of capital, must be applied in the following manner and order: (a) in paying the debts of the firm to third parties; (b) in paying to each partner rateably what is due to him from the firm for advances as distinguished from capital; (c) in paying to each partner rateably what is due to him on account of capital; and (d) the residue, if any, shall be divided among the partners in the proportions in which they were entitled to share profits. If firm assets are insufficient to pay debts, the partners must contribute in proportion to their loss-sharing ratios (Section 49) to meet the deficiency.