The dissolution of partnership firm implies the discontinuance of partnership business and the termination of economic relations between the partners. It differs from the dissolution of partnership, which merely changes the relationship between partners but allows the firm to continue.

The process of dissolution may be initiated in several ways. It can be a compulsory dissolution or occur on the happening of certain contingencies such as the expiry of a fixed term, completion of a venture, death of a partner, or adjudication of a partner as insolvent.

Alternatively, in a partnership at will, the firm may be dissolved by notice given by a partner. A Court may also order dissolution on grounds like a partner becoming insane or permanently incapable of performing duties.

Once dissolution is decided, the firm closes its business altogether. It proceeds to realise all its assets to gather funds.

The funds are used to pay all liabilities. Payment is made to the creditors first out of the assets realised. If necessary, the payment is made next out of the contributions made by the partners in their profit sharing ratio. Finally, after settling accounts and paying partners their due, the books of the firm are closed.