When a partnership firm dissolves, either due to mutual agreement among the partners or by operation of law, the rights and liabilities of the partners are governed by the terms of the partnership agreement and relevant legal provisions. Here's a description of the rights and liabilities of partners upon dissolution:
1. Rights of Partners:
Right to Surplus Assets: After paying off the firm's debts and liabilities, the surplus assets of the partnership are distributed among the partners in accordance with their respective shares in the profits.
Right to Take Over Assets: Partners have the right to purchase partnership assets at fair value if they wish to continue the business individually or with new partners.
Right to Dissolution Process: Partners have the right to participate in the winding-up process of the partnership affairs, including the collection of debts, settlement of liabilities, and distribution of assets.
Right to Dissolution Remedy: If a partner is wrongfully excluded from the partnership or if the dissolution is in violation of the partnership agreement, the partner may have legal remedies available, such as seeking damages or an injunction.
2. Liabilities of Partners:
Liability for Firm's Debts: Partners remain jointly and severally liable for the debts and obligations of the firm incurred before dissolution. Creditors can still hold partners liable for any outstanding debts, even after dissolution.
Liability to Third Parties: Partners may still be personally liable to third parties for acts or obligations undertaken on behalf of the partnership before dissolution, unless there is an agreement or legal provision to the contrary.
Liability for Misconduct: Partners may be liable for damages resulting from their wrongful conduct or breaches of fiduciary duty during the winding-up process or dissolution.
Liability for Share of Losses: If the assets of the partnership are insufficient to cover its debts, partners may be required to contribute additional funds to cover their share of losses, as specified in the partnership agreement or by law.
It's important for partners to carefully follow the dissolution procedures outlined in the partnership agreement and applicable laws to ensure the orderly winding up of the firm's affairs and the fair distribution of assets and liabilities among the partners. Failure to do so could result in legal disputes and additional liabilities for the partners.
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