Reconstitution changes the internal relations of partners, while dissolution completely terminates the existence of the firm.
1. Dissolution of Firm vs. Dissolution of Partnership
- Dissolution of Partnership: A change in the relations of partners (e.g. admission, retirement, death). The business continues with the remaining partners.
- Dissolution of Firm: The complete breakdown of relations between all partners. The business is wound up, assets sold, and accounts settled.
2. Modes of Dissolution
- Dissolution by agreement or compulsory dissolution (firm's business becoming unlawful).
- Dissolution by notice in a partnership-at-will (Section 43).
- Dissolution by Court (Section 44): A partner can sue for dissolution on grounds of insanity, permanent incapacity, persistent breach of agreement, transfer of interest, or when it is just and equitable.
3. The Severe Effects of Non-Registration (Section 69)
Registration of a partnership firm is optional in India. However, Section 69 imposes severe legal disabilities on an unregistered firm:
- The unregistered firm cannot sue any third party in court to enforce contractual rights.
- No partner of an unregistered firm can sue the firm or other partners to enforce contractual rights.
- The firm cannot claim set-off in any legal proceeding exceeding Rs. 100.