A partnership firm must be dissolved in order to cease to exist. This procedure, known as dissolution of a partnership firm, entails selling and disposing of all of the firm’s assets, paying off all of its debts, and settling the accounts. How Can a Partnership Firm Be Dissolved? When a partnership firm dissolves, the company that operates under its name does so as well. In this instance, all debts are finally paid off by selling off assets or giving them to a specific partner, clearing up any outstanding balances owed to the partnership firm. Any profit or loss is distributed to the partners in accordance with their agreed-upon profit-sharing ratio in the partnership document.

Dissolving a partnership firm differs from dissolving a partnership in that the former prevents the firm from operating in the future by ending its name. The firm can continue to exist if the remaining partners join into a new partnership agreement, however in the case of dissolving a partnership, the existing partnership is dissolved—by consent or upon the occurrence of a specific event.