Dissolving a Partnership Firm: Agreement, Notice, Court Order, the Dissolution Deed and Settling the Accounts

In this guide: The routes to dissolution: sections 39–44 · The deed of dissolution and the stamp · Notice to the Registrar and public notice · Settling the accounts: sections 46–55 · When partners fight: the suit for dissolution and accounts

The short answer

If the partners agree, the work is a deed of dissolution: it fixes the dissolution date, states that the accounts have been taken to that date (attach the final balance sheet), allocates the firm’s assets, stock, receivables, goodwill and name, allocates and indemnifies the liabilities (including the lease, the bank facility and taxes), records any payment from one partner to another, and releases the partners from further claims; all partners sign on Tk 2,000 non-judicial stamp before witnesses and a notary. If one partner is continuing the business, the deed is a retirement deed instead and the firm continues (s.32) — register the change rather than a dissolution. Then file notice of dissolution with the Registrar of Firms at app.roc.gov.bd (Tk 1,000 + VAT), publish a public notice in a newspaper and to the firm’s bank, customers and suppliers, close the account, surrender the trade licence, file the final income-tax return and apply to cancel the firm’s TIN and BIN. If the partners do not agree, a partner in a partnership at will dissolves it by written notice to the others (s.43) and the firm is dissolved on the date in the notice; in a fixed-term or purpose partnership, or where the other partners resist, the remedy is a suit for dissolution and accounts in the civil court under s.44 — and s.69 allows that suit even for an unregistered firm.

The routes to dissolution: sections 39–44

Two points decide most cases. First, whether the partnership is at will: unless the deed fixes a term or a purpose, it is, and any partner may dissolve it by notice, which cannot be withdrawn without the others’ consent. Second, whether the deed continues the firm on a partner’s death or retirement: the Act dissolves the firm on death (s.42(c)) unless the contract says otherwise, which is why a deed clause providing for continuation with the survivors, and for the payment of the deceased’s share to the estate, saves a family business. A partner who has been expelled under a power in the deed, or who retires, does not dissolve the firm; the firm continues and the accounts between the outgoing partner and the firm are settled under ss.32–37.

The deed of dissolution and the stamp

The deed is the record of the bargain between the partners, and it is what each of them will produce when a creditor, the bank or the NBR comes later. It should contain: the firm’s name and registration number; the parties; the date of dissolution; a statement that the accounts have been made up to that date and the final balance sheet annexed; the division of assets — cash, receivables, stock, vehicles, deposits, the lease (assignment or surrender), licences, the goodwill and firm name (s.55: goodwill is an asset to be sold or allocated, and the buyer may restrain the others from using the name) — and of liabilities, with each partner indemnifying the others for what he takes; any equalisation payment; the release of claims; a non-compete if agreed (s.54 permits a reasonable restraint on dissolution); and dispute resolution. Stamp duty under Art.45(B) of Schedule I to the Stamp Act as substituted by the Finance Act 2022 is Tk 2,000; execute before two witnesses and a notary public. Partners abroad sign before the mission. An unstamped or under-stamped dissolution deed is inadmissible in evidence until the deficit and penalty are paid (Stamp Act, s.35) — a dissolution that was never properly documented is the hardest kind of case to defend.

Notice to the Registrar and public notice

Section 63 lets any partner (or the agent of one) give notice to the Registrar of Firms of the dissolution of a registered firm, and the Registrar records it in the Register of Firms; the RJSC service is online at app.roc.gov.bd with the dissolution deed, the notice signed by the partners and the fee of Tk 1,000 + VAT under the 2023 fee revision. Section 45 is the provision that matters: partners continue to be liable as such to third parties for any act done by any of them which would have been an act of the firm if done before the dissolution, until public notice is given. Public notice (s.72) means notice to the Registrar of Firms for a registered firm, publication in the Gazette, and publication in at least one newspaper circulating in the district where the firm had its principal place of business. In practice: a notice in a national daily, letters to the bank and the principal customers and suppliers, and the Registrar’s record. The partner who skips this step is the one who is sued on a purchase order the other partner signed six months later. The estate of a deceased partner, an insolvent partner, and a partner who was not known to the third party to be a partner are not liable for post-dissolution acts (s.45(2)).

Settling the accounts: sections 46–55

On dissolution every partner is entitled to have the firm’s property applied in payment of its debts and the surplus distributed (s.46), and the authority of each partner continues so far as necessary to wind up and complete unfinished transactions (s.47). Section 48 fixes the order: losses (including deficiencies of capital) are paid first out of profits, next out of capital, and lastly by the partners individually in their profit-sharing ratio; assets, including partners’ contributions to make up deficiencies, are applied first to third-party debts, then to partners’ advances (loans, as distinct from capital), then to capital, and the residue divided in the profit-sharing ratio. Where the deed is silent on loss-sharing, losses follow profit shares (s.13). Premium paid on joining is partly returnable on premature dissolution (s.51); a partner who continues using the firm’s property after dissolution accounts for the profits (s.50); the sale of goodwill and the buyer’s rights are in s.55. The practical steps: a cut-off balance sheet by the firm’s accountant; collection of receivables and sale of stock; payment of creditors, employees’ dues under the Labour Act, the landlord and the bank; the firm’s final income-tax return for the broken period and applications to cancel the TIN and BIN; and only then the distribution. Where partners cannot agree the accounts, the Court appoints a receiver or commissioner and takes them.

When partners fight: the suit for dissolution and accounts

A partner who is excluded from the business, denied the books or faced with a partner who will not settle has one effective remedy: a suit for dissolution of the firm and for accounts in the civil court (the Joint District Judge or District Judge depending on value), with an application for a receiver and an injunction restraining the other partner from operating the account or disposing of the assets. Section 69(3)(a) expressly allows this suit for an unregistered firm — it is the exception to the bar on unregistered firms suing. The Court decrees dissolution on a s.44 ground and directs accounts from the date the last accounts were settled; the preliminary decree is followed by a commissioner’s accounts and a final decree, which in Dhaka takes years rather than months. Arbitration under a clause in the deed is faster and is enforced by the Arbitration Act 2001; most well-drafted deeds now have one. Criminal complaints for breach of trust between partners are common and mostly fail, because a partner cannot ordinarily be guilty of criminal breach of trust of partnership property; the civil suit is the route. Our partnership deed guide sets out the clauses that prevent the fight, and our disputes desk takes it on when it has started.