A partnership is dissolved due to?

A. liquidity of the firm
B. death of the employee
C. insanity of partner
D. resignation of an employee

Correct Answer: Option C

C. insanity of partner

Explanation

Partnership dissolution refers to the termination of a partnership as well as the cessation of its various business activities. Partnerships can dissolve for various reasons and under many circumstances.

The general dissolution of a partnership will usually be instigated as a result one of the following events:

• The mutual agreement of the partners – which may be an ad hoc agreement, or an agreement enshrined in the partnership agreement (where, for example, it was agreed that the partnership would be dissolved after a particular date, or after a certain event). Such an agreement may be implied rather than actual
• By the serving of a notice by a partner where such action provided for in partnership agreement
• The exercise of specific power in the partnership agreement – where, for example, the partnership agreement allowed a majority of the partners to seek dissolution.
• The exercise of power in the legislation
• One of the events provided for in the legislation (e.g., the death or bankruptcy of a partner) subject to contrary agreement
• Fraud, misrepresentation, rescission or illegal activity
• By an order of a court (following, for example, the mental incapacity or other ill-health of a partner)
• Where the business may only be carried on at a loss