Section 40: Dissolution by agreement

Key takeaways

Two routes to a voluntary dissolution

The first route is the consent of all the partners. The second is dissolution in accordance with a contract between the partners, which can set out in advance the events or procedure that will dissolve the firm.

Steps after agreeing to dissolve

Give public notice of the dissolution: until it is given, section 45 keeps the partners liable to third parties for acts that would have been acts of the firm. For a registered firm, section 72 requires public notice of a dissolution to be given by notice to the Registrar of Firms under section 63 and by publication in the Official Gazette and in at least one vernacular newspaper circulating in the district of the firm's place or principal place of business.

Then wind up under sections 46 to 48, which deal with applying the firm's property to its debts, the partners' continuing authority to complete unfinished transactions, and the settlement of accounts.

• India Code: Indian Partnership Act, 1932, section 40, with sections 45, 63 and 72

Hypothetical business example

Hypothetical: Three partners in a registered firm decide to close their consultancy. They sign a dissolution deed recording the date, give public notice as section 72 requires, collect receivables and pay creditors, and then settle accounts under section 48, subject to anything their deed provides.

Check the applicable state law

The India Code consolidated central text (as on 7 July 2025) records no State amendment to section 40, although several States have amended other sections of the Act, mainly those on registration of firms. Confirm the law of the State where the firm carries on business, and the firm's own partnership agreement, before acting.

Practical checklist

Glossary

Dissolution deed

A written agreement recording the partners' decision to dissolve and the winding-up terms.

Public notice

Notice given in the manner section 72 prescribes.

Frequently asked questions