The main legal provisions with regards to dissolution a of partnership firms are as follows :

(1) Legal provision for loss of firm : Here, from the profits of the firm and if profits is not . sufficient the loss of the firm is written off against the capital of the partners. If capitals are insufficient, the loss will be borne by the partners in their profit and loss ratio and will be paid by selling of their own assets.

(2) Legal provision for the payment of liabilities of the firm and partners : The partners have unlimited liabilities and liabilities of the firm are to be paid off by assets of the firm but because of unlimited liabilities of the partners, firm’s remaining liabilities are to be paid of from their personal assets.

(3) Payment of loan to the firm by the partners : First of all liabilities of the firm will be paid ‘ by realising the asses of the firm. After paying the external liabilities of the firm, loan of partner’s will be paid. If more than one partner has loaned to the firm and if the partners are not in a position to make up deficit, the loans are to be paid proportionately.

(4) Payment of loan given by the partners’ wife : Wife’s loan to the firm will be rapid like payment to a third party. But if wife of a partner has given it from the fund of her husband, it will be treated as loan of that partner.

(5) Payment of liabilities of a partner : Liabilities of the partners are unlimited and if any of partners is declared insolvent on dissolution, the solvent partners are liable to pay the liabilities of the firm as the insolvent partner/s will not be able to meet his/their share.

(6) Legal provision for distribution of the realised assets of the firm : The payment for the liability from the realisation of assets will be made in following manner.

(i) First pay the dissolution expenses.
(ii) After that, liabilities of third parties will be paid.
(iii) Then, the loan of partner/s is to be paid.
(iv) Payment towards partners capital and current accounts.
(v) If any surplus, it will be distributed among the partners in the profit-loss sharing ratio.