Busines n Labor Law

8/2/2019 Busines n Labor Law

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Semester autumn 2011

Business and labor law(824)

MBA HRM


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Dissolution of partnership and

settlement of accounts on

dissolution


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ContentsIntroductionPartnership

Dissolution of partnershipSettlement of accounts on dissolution

Practical study

PEPCODissolution of partnershipAnd settlement of accountson dissolution of PEPCO


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Introduction

Partnership

A partnership is the relationship existing between two or more persons whojoin to carry on a trade or business. Each person contributes money,property, labor or skill, and expects to share in the profits and losses of thebusiness.

A partnership must file an annual information return to report the income,deductions, gains, losses, etc., from its operations, but it does not payincome tax. Instead, it "passes through" any profits or losses to its partners.Each partner includes his or her share of the partnership's income or loss onhis or her tax return.


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Dissolution of partnership

When the relation between all the partners of the firm comes to an end, thisis called dissolution of the firm.

Dissolution of partnership is different from the dissolution of firm. Whenany of the partners dies, retires or become insolvent but if the remaining

partners still agree to continue the business of the partnership firm, then it isdissolution of partnership not the dissolution of firm. Dissolution of

partnership changes the mutual relations of the partners. But in case ofdissolution of firm, all the relations and the business of the firm comes to anend.

The dissolution of partnership between all the partners of a firm is called the

dissolution of the firm". Dissolution by agreement Dissolution by

agreement. A firm may be dissolved with the consent of all the

partners or in accordance with a contract between the partners.


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Modes of Dissolution

A firm may be dissolved in any of the following

ways:-

1. By Consent:- A partnership firm can be dissolved any time with theconsent of all the partners whether the partnership is at will or for a fixedduration.

2. By Agreement:- A partnership can be dissolved in accordance with theterms of the Partnership Deed or of the separate agreement.

3. Compulsory Dissolution:- In case, any of the following events take placethen it becomes compulsory for the firm to dissolute: -(i) Insolvency of Partners:- In case all the partners or all the partners exceptone become insolvent.(ii) Unlawful Business:- In case the firms business become unlawful on thehappening of a subsequent event. e.g. trading with alien country.

4. Dissolution on the happening of contingent event:- A firm may bedissolved on the happening of any of the following contingent event:-(i) Expiry of Fixed Period:- If the firm is constituted for fixed period, thenthe firm is dissolves automatically.(ii) On achievement of specific task:- If the firm has been constituted forthe achievement of specific task, on achievement of that task, firm ceases toexist.(iii) Death of Partner:- Death of any of the partner dissolves the

partnership.(iv) Insolvency of Partner:- The insolvency of any of the partner may

dissolve the firm.(v) Resignation of Partner:- Resignation by any of the partners dissolvesthe partnership.

5. Dissolution By Notice:- In case of partnership at will, a partner candissolve it by giving written notice of dissolution to other partners dulysigned by him.


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6. Dissolution by Court:- The court may order for the dissolution of the

firm on the following grounds:-(i) Insanity of Partner:- On the application of any of the partner, court mayorder for the dissolution of the firm if a partner has become of an unsoundmind.(ii) Incapacity of Partner:- If a partner has become permanent in capable ofdischarging his duties and obligations then court may order for thedissolution of firm on the application of any of the partner.(iii) Misconduct of Partner:- If any partner other than partner suing isresponsible for any loss to the firm, then the court may order for thedissolution of the firm.(iv) Constant breach of agreement by partner:- The court may order forthe dissolution of the firm if the partner other than the suing partner is foundguilty for constant breach of agreement and it becomes impossible tocontinue the business with such partner.(v) Transfer of Interest:- When any of the partner other than the suing

partner transfers whole of its share to the third party for permanently.(vi) Continuous Losses:- The court may order for dissolution if the firm iscontinuously suffering losses and there is no more capital available for thefuture growth of the firm.

(vii) Just and Equitable:- The court may order for dissolution on any otherground which court think is just, fair and equitable. e.g. loss of totalconfidence between the partners.


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Subject to agreement by the partners be observed:

(a) Losses, including deficiencies of capital, shall be paid first out of profits,next out of capital, and, lastly, if necessary, by the partners individually inthe proportions in which they were entitled to share profits;

(b) The assets of the firm, including any sums contributed by the partners tomake up deficiencies of capital, shall be applied in the following manner andorder:

(i) In paying the debts of the firm to third parties;

(ii) In paying to each partner ratably what is due to him from the firm foradvances as distinguished from capital;

(iii) in paying to each partner ratably what is due to him on account ofcapital; and

(iv) The residue, if any, shall be divided among the partners in theproportions in which they were entitled to share profits.


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Dissolution by the Court

.Dissolution by the Court. At the suit of a partner, the Court may dissolve afirm on any of the following grounds, namely:-

(a) that a partner has become of unsound mind, in which case the suit maybe brought as well by the next friend of the partner who has become ofunsound mind as by any other partner;

(b) that a partner, other than the partner suing, has become in any waypermanently incapable of performing his duties as partner ;

(c) that a partner, other than the partner suing, is guilty of conduct which islikely to affect prejudicially the. Carrying on of the business, regard being

had to the nature of the business;

(d) that a partner, other than the partner suing, willfully or persistentlycommits breach of agreements relating to the management of the affairs ofthe firm or the conduct of its business, or otherwise so conducts himself inmatters relating to the business that it is not reasonably practicable for theother partners to carry on the business in partnership with him;

(e) that a partner, other than the partner suing, has in any way transferred thewhole of his interest in the firm to a third party, or has allowed his share to

be charged under the provisions of rule 49 of Order XXI of the FirstSchedule to the Code of Civil Procedure, 1908,(5 of 1908). or has allowed itto be sold in the recovery of arrears of land- revenue or of any duesrecoverable as arrears of land revenue due by the partner ;

(f) that the business of the firm cannot be carried on save at a loss ; or

(g) on any other ground which renders it just and equitable that the firmshould be dissolved.


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Liability for acts of partners done after dissolution. Liability for acts ofpartners done after dissolution. Notwithstanding the dissolution of a firm,the partners continue to be liable as such to third parties for any act done byany of them which would have been an act of the firm if done before thedissolution, until public notice is given of the dissolution: Provided that theestate of a partner who dies, or who is adjudicated an insolvent, or of a

partner who, not having been known to the person dealing with the firm tobe a partner, retires from the firm, is not liable under this section for actsdone after the date on which he ceases to be a partner

(1) Notices under sub-section

(2) May be given by any partner.

Right of partners to have business wound up after dissolution.

Right of partners to have business wound up after dissolution.

On the dissolution of a firm every partner or his representative is entitled, asagainst all the other partners or their representatives, to have the property ofthe firm applied in payment of the debts and liabilities of the firm, and tohave the surplus distributed among the partners or their representativesaccording to their rights. Continuing authority of partners for purposes ofwinding up. Continuing authority of partners for purposes of winding up.

After the dissolution of a firm the authority of each partner to bind the firm,and the other mutual rights and obligations of the. partners, continuenotwithstanding the dissolution, so far as may be necessary to wind up theaffairs of the firm and to complete transactions begun but unfinished at thetime of the dissolution, but not otherwise : Provided that the firm is in nocase bound by the acts of a partner who has been adjudicated insolvent ; butthis proviso does not affect the liability of any person who has after theadjudication represented himself or knowingly permitted himself to berepresented as a partner of the insolvent. Mode of settlement of accounts

between partners. .Mode of settlement of accounts between partners. Insettling the accounts of a firm after dissolution, the following rules shall,subject to agreement by the partners, be observed: -


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(a) Losses, including deficiencies of capital, shall be paid first out of profits,next out of capital, and, lastly, if necessary, by the partners individually inthe proportions in which they were entitled to share profits.

(b) The assets of the firm, including any sums contributed by the partners tomake up deficiencies of capital, shall be applied in the following manner andorder:-

(i) in paying the debts of the firm to third parties

(ii) in paying to each partner ratably what is due to him from the firm foradvances as distinguished from capital ;

(iii) in paying to each partner ratably what is due to him on account ofcapital ; and

(iv) the residue, if any, shall be divided among the partners in theproportions in which they were entitled to share profits. Payment of firmdebts and of separate debts.

.Payment of firm debts and of separate debts. Where there are joint debts duefrom the firm, and also separate debts due from any partner, the property ofthe firm shall be applied in the first instance in payment of the debts of thefirm, and, if there is any surplus, then the share of each partner shall be

applied in payment of his separate debts or paid to him. The separateproperty of any partner shall be applied first in the payment of his separatedebts, and the surplus (if any) in the payment of the debts of the firm.Personal profits earned after dissolution.

1-Personal profits earned after dissolution. Subject to contract between thepartners, the provisions of clause (a) of section 16 shall apply to transactionsby any surviving


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2-partner or by the representatives of a deceased partner, undertaken afterthe firm is dissolved on account of the death of a partner and before itsaffairs have been completely wound up :

3-Provided that where any partner or his representative has bought thegoodwill of the firm, nothing in this section shall affect his right to use thefirm name.

.Return of premium on premature dissolution. Return of premium onpremature dissolution. Where a partner has paid a premium on entering intopartnership for a fixed term, and the firm is dissolved before the expirationof that term otherwise than by the death of a partner, he shall be entitled torepayment of the premium or of such part thereof as may be reasonable,regard being had to the terms upon which he became a partner and to the

length of time during which he was a partner, unless-

(a) the dissolution is mainly due to his own misconduct, or

(b) the dissolution is in pursuance of an agreement containing no provisionfor the return of the premium or any part of it.

At the time of dissolution of the partnership the main question that arises isthe settlement of accounts of the various parties like creditors, bank loans,

partners' loans, partners' capital accounts. This issue has been dealt in detail

by the section 48, 49 and 55 of the Partnership Act. The account of all theseparties will be settled as under:

1) If there is any Loss or Deficiency of capital it would be first paid out ofthe profits of the firm and then out of the Capital of the partners and if stillany balance remains it would be realised from the Partners privately in their

profit sharing ratio.


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2) The amount realised from the sale of the assets of the firm, debtors andthe amount contributed by the partners if any would be applied in thefollowing manner:

a) Outside liabilities would be paid first which includes Creditors, Billspayables, Outstanding expenses, Bank Loans or outsiders' Loans (includingthe loans provided by the relatives of the partners), EmployeesCompensations or provident funds etc.

b) Thereafter the Loans advanced by Partners to the firm will be paid off.

c) Thirdly the Partners' Capital accounts will be settled.

d) The balance left if any will be distributed among the partners in theirprofit sharing ratio.

The accounts of affirm on dissolution must be settled according to thefollowing rules: Losses suffered by the firm shall be paid- first out of profits,next, out of capital, and lastly, if necessary by the partners individually inthe proportion in which they were entitled to share profits. The assets of thefirm, including the contributions of the partners are to be distributed in thefollowing order: In paying the debts due to third parties; In paying the

partners rateably advance made by them as distinguished from theircontributions towards the capital;

In paying the partners rateably what is due to them on account of capital.

If there is any surplus, it shall be divided between the partners in theproportion in which they were entitled to share profits. We may alsodescribe the above statement as follows. External debts shall be paid out ofassets of the firm first and if any surplus is left the same shall be utilized forrepayment of loans advanced by the partners and next the residue shall beapplied among the partners for the repayment of capitals and if still thesurplus is left it shall be distributed among partners as profit in their profit

sharing ratio. However, in case of deficiency the deficiency of the insolventpartner is borne by the solvent partners in the ratio of their fixed capitals.


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Settlement of accounts and contributions

among partners

1. In winding up a partnership's business, the assets of the partnership,including the

Contributions of the partners required by this section, must be applied todischarge its

Obligations to creditors, including, to the extent permitted by law, partnerswho are

Creditors. Any surplus must be applied to pay in cash the net amountdistributable to

Partners in accordance with their right to distributions under subsection 2.

2. Each partner is entitled to a settlement of all partnership accounts uponwinding up the partnership business. In settling accounts among the partners,the profits and losses

that result from the liquidation of the partnership assets must be credited andcharged

to the partners' accounts. The partnership shall make a distribution to apartner in an

amount equal to any excess of the credits over the charges in the partner'saccount. A partner shall contribute to the partnership an amount equal to anyexcess of th charges over the credits in the partner's account.


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3. If a partner fails to contribute, all of the other partners shall contribute, inthe proportions in which those partners share partnership losses, theadditional amount necessary to satisfy the partnership obligations. A partneror partner's legal representative may recover from the other partners anycontributions the partner makes to the extent the amount contributed exceedsthat partner's share of the partnership obligations.

4. After the settlement of accounts, each partner shall contribute, in theproportion in which the partner shares partnership losses, the amountnecessary to satisfy partnership obligations that were not known at the timeof the settlement.

5. The estate of a deceased partner is liable for the partner's obligation tocontribute to the partnership.

6. An assignee for the benefit of creditors of a partnership or a partner, or aperson appointed by a court to represent creditors of a partnership or apartner, may enforce a partner's obligation to contribute to the partnership.In settling the accounts of a firm after dissolution, the following rules shall,


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Practical study


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Pakistan Electric Power Company (PEPCO)

Introduction

The Pakistan Electric Power Company (Private) Limited (PEPCO) has beenentrusted the task of managing the transition of WAPDA from a bureaucraticstructure to a corporate, commercially viable and productive entity. It is amammoth task and progress in the initial months was rather slow, but oneshould keep in mind that responsibility is enormous and transition is a longdrawn process..

De-regulation of power sector

Promotion of IPPs

Restructuring of WAPDA Privatization of select corporate entities

The factors responsible for the shift in policies were: generation capacitycould not be increased to meet demand, WAPDA's growth causedinefficiencies, 'demand suppression' and high tariff policy, proliferated theft.All these factors, over the years, adversely affected WAPDA's financialcondition. As part of this programme WAPDA's functions under its WaterWing and Power Wing were to be segregated. It was previously envisagedthat all power generation, Hyde as well as thermal, would be corporatized.

However, later on it was decided that the Hyde generation should remainpart of the Water Wing or the remaining WAPDA.

PEPCO has prepared the conceptual framework and is following acomprehensive strategy whereby WAPDA's vertical-monolithic Power Winghas been restructured into twelve (12) distinct autonomous entities underCompanies Ordinance 1984.Three generation companies:

1. Southern Generation Power Company Limited (GENCO-1) head quarterat Jamshoro district Dadu near Hyderabad Sindh.

2. Central Power Generation Company Limited (GENCO-2) head quarter atGuddu district Jacobabad Sindh.

3. Northern Power Generation Company Limited (GENCO-3) head quartersat WAPDA House Lahore


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To make Pakistan Power Sector customer friendly, efficient,

able and responsive in meeting tee electric energy

requirements of industry, business and domestic customers,

and move to an energy sufficient model from the current

energy deficient scenario, on commercially viable and

sustainable basis.


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To fully enable the reform and restructuring of the

Pakistan Power Sector and to transform the fourteen

(14) corporate entities (CE's) into autonomous and

commercially viable enterprises, thru induction of

effective corporate management, best business and

utility practices.


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Objectives

Pakistan Electric Power Company (PEPCO) unveiled new face of Pakistan's power sectorwith the crisis management objectives to improve the efficiency of the power sector and tomeet customers' electric energy requirements on a sustainable and environment friendlybasis.

Stop load shedding,

Constructing new grid stations,

Reducing line losses; minimizing tripping and theft control

Performance ReviewJob Analysis can be used in performance review to identify or develop:

goals and objectives

performance standards

evaluation criteria

length of probationary periods

duties to be evaluated

Methods of Job Analysis

Several methods exist that may be used individually or in combination.These include:

review of job classification systems

incumbent interviews

supervisor interviews

expert panels structured questionnaires

task inventories

check lists

open-ended questionnaires

observation

incumbent work logs


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Dissolution of partnership

PEPCO

Wapda Friday October 2010 dissolved its loss-making main electric power company aspart of energy reforms, the water and power minister said.

PEPCO (Pakistan Electric Power Company) was losing billions of rupees a year, RajaPervaiz Ashraf, told reporters in Islamabad in remarks broadcast live on television.

The dissolution of the 18-year-old company clears the way for the restoration of thecurrently suspended $11.3 billion IMF bailout programme.

PEPCO was formed to mainly to oversee and administer 14 companies, which include 8

power distribution companies.

With PEPCO's demise, the government aims to make the 14 companies independent to helpthem eventually recover from losses, analysts and officials said.

While the move may be a step towards energy reforms and restructuring, the decision initself will not have serious financial implications in the short term, analysts said.

The International Monetary Fund said last week Pakistan was spending about $2 billion ayear to subsidies electricity and it was important to reform the power sector.

Despite the subsidies, the country suffers from chronic energy shortages and power cuts.

"PEPCO was not serving its purpose as a holding company, so it's better that it's beendissolved," said Khalid Iqbal Siddiqui, director at Invest and Finance Securities Ltd.

Busines n Labor Law

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