Question

Write any two circumstances for compulsory dissolution of a firm.

Hint:

Compulsory dissolution happens automatically due to insolvency or illegality.

Answer 1

Compulsory dissolution occurs automatically when certain events take place. First, if all or all except one partner become insolvent, the firm must be dissolved because the business cannot continue. Second, if the business becomes illegal due to changes in law, such as banning a particular trade, compulsory dissolution is required. Third, if an event occurs that makes the business impossible to carry on, such as destruction of essential assets, the firm must be dissolved. These circumstances do not require a court order, as dissolution happens by force of law. Any two such conditions are sufficient.