Category: Commerce Notes PPT

Cost control and cost reduction are the two very efficient tools used to reduce the cost of production and maximise profit. In simple words, Cost control is a technique used to provide the management with all the necessary information regarding the actual costs and also align them properly with the budgeted costs. On the other hand, the term cost reduction is used to save the unit cost of the product, without causing any compromise to its quality. The companies use a wide variety of techniques of cost control and cost reduction in order to carry out the process effectively.

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Cost Control

The definition of cost control states that it is a process which focuses on trying to control the total cost through competitive analysis. Such practices help in aligning the original cost in agreement with the established costs.

Through this process, firms can ensure their production costs do not soar higher than the predetermined expenses. The cost control process involves several stages, which begins with the budget preparation related to production. Next, the actual performance is evaluated, followed by the calculation variances between the original cost and the budgeted cost. The next task is to investigate the reasons for the same, and the final stage involves implementing necessary actions to mend the discrepancies.

Standard costing and budgetary control are two techniques used in the cost control process. The process is a continuous one and helps to analyse the causes for the variances. It involves:

• Determining the standards

• Comparing the standards and looking at the results

• Analysing the variances

• Establishing the action needed to be taken by the firm

Cost Reduction

The definition of cost reduction states it to be a process which aims to reduce the unit cost of a product or service manufactured by the firm without harming its quality. A number of modern and improved techniques can be used for this purpose which serves as an insight to the alternative methods to lower the production costs of every unit.

 

Cost reduction has a significant role in reducing the per unit costs of products and are thus essential for firms to maximise their profits. This process helps in pointing out and reducing the unnecessary expenses during the production process, storage, selling or distribution of the products. The cost reduction process emphasises the following:

• Savings in every unit cost of production

• The product quality should not be compromised 

• Non-volatile nature of the savings

The primary tools involved in cost reduction involve quality operation and research, better designs in products, reducing variety and evaluating jobs amongst others.

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Difference Between Cost Control and Cost Reduction

The importance of cost control and cost reduction are massive in businesses, but they have a few differences. The key difference between cost control and reduction include:

• Cost control is a process which focuses on reducing the total cost of production. However, cost reduction aims at reducing the per unit cost of a product.

• Cost control is a quick process by nature, while cost reduction is a more permanent process.

• The cost control process ends when the required target is met. On the other hand, the cost reduction process is a continuous process which does not end after a certain time. It is primarily focused on eliminating unnecessary costs.

• Cost control does not provide any promises regarding maintaining the quality of the products, but cost reduction does not affect the quality of the product even slightly.

• The cost control process is more of a function to prevent the cost before their occurrence while the cost reduction process is more of a function used to resurrect the expenses.

Thus cost control and reduction are an essential part of any organisation willing to boost their profits.

Did You Know?

The meaning of cost of control is to identify and reduce the expenses in business to maximise profit. It is a useful factor in maintaining and growing the earnings of the company. The budgeting process helps massively in this regard as the actual results of the company are compared with the budget. If the actual costs are more than what planned, then the company needs to take action.

Solved Examples

1. Cost Measure is What Kind of Control?

1. Corrective

2. Preventive

3. Both

4. None of the above

Ans: (b) Preventive

2. Which Type of Control Process Does Not Affect the Quality of the Products?

1. Cost control

2. Cost reduction

3. Cost-cutting

4. None of the above

Ans:  (b) Cost reduction 

Importance of Cost Control and Cost Reduction in Commerce

Cost control mainly focuses on bringing down the total cost of production whereas cost reduction focuses on decreasing the per unit cost of a particular product. Cost Control is thus temporary but Cost Reduction is permanent in nature.  In Commerce, students will learn how cost control gets completed once all the business targets are achieved. It is an important chapter that will pave the way for other related chapters later on. Getting the very fundamentals right at this stage will then assist the students in understanding all the challenging concepts later on. It is one of the most important chapters of Commerce and must be prepared for in a proper manner.

How to Prepare for a Commerce Test on Cost Control and Cost Reduction

• Students can go through Cost Control and Cost Reduction – Explanation, Difference and Solved Examples on

• This page has all the information that they need to be aware of

• Read everything on the page and then make notes on certain topics using your own words

• Go through the solved examples properly

• Assess what you’ve learnt by writing each of the concepts down in your own words

• Revise from this page before all tests

Decision making is a regular part of the job of employees in different organizations all around the world. The decisions regarding the company’s managerial, financial and working state impact how it will function and the state it is going to be. There are generally two broad categorizations in techniques for decision making- individual and group decision making. However, the decision-making process is so crucial for the existence and the future of a company that mostly it is not taken by any individual of the company. In an organization, decision making in groups is a far more common approach than decision making by an individual. 

The organization must form a decision-making team and define the scope of power and authority that it holds. This allows the members to make better decisions for the company while getting supervised on important decisions. Policies made regarding such decision-making teams safeguard their positions. Also, in case of a failure, the burden of wrong decision does not lie with a single person and as the teams have been established under them, higher authorities also share the blame in the decision. Therefore the risk associated with such decisions is lower when compared to the other scenario.

Advantages of Group Decision Making

1. The decision-making committee comprises people in different positions of power. Each of these members brings with them their ideas and opinions about the problem at hand. Therefore group decision-making allows the team to discuss the different viewpoints and objectively look at the options.

2. People from different parts of the organization are mixed in these groups while making the decision. Therefore it becomes easier to implement the decision throughout the organization. Each department manager knows exactly what has been decided in the meeting and how much of it they have to contribute. This crucial piece of information allows them to give clear instructions to their subordinates in the department.

3. A sense of unity prevails among the members when a decision is taken collectively. People take pride in it and often work hard to see that their decision leads to success for the company.

Disadvantages of Group Decision Making

1. In general, this method of decision-making requires more time than a single person making a decision. This is because here, every step needs to be consulted among the different members before proceeding.

2. The process of forming a committee and reaching a good decision can be drawn-out. Therefore, the opportunity to solve the problem or take a serious decision may be lost.

3. In the group, it is sometimes hard to reach a common decision for a problem. This may lead to indecisions and members may not be keen to share their ideas to avoid the blame in case of failures.

Decision making in groups can be done in several ways. Given below are a few of the group decision-making techniques widely used in the industry:

Brainstorming

The team is required to sit together for this technique to work. A person is assigned to write different ideas generated. This method aims to focus on the problem and think of the different ways it can be solved. Therefore here, the feasibility of the option is neglected in the initial stages of discussion. Creativity and innovation among the members are used to find new approaches to the problem.

The list containing all these gathered probable solutions is then circulated among the members. The committee improvises and improves on the different alternatives to ultimately come up with a solution.

The process is very effective for most of the group decision-making committees. The method is best suited for straightforward decisions. A complex problem is broken down into several different steps when dealt with a brainstorming approach.

Nominal Group Thinking

This approach is similar to brainstorming though the difference here is that it is better structured and has less open communication of ideas when discussing the problem. Every member of the team individually comes up with a solution to the problem at hand. The moderator then presents these potential solutions one by one to all the other members. Limiting the communications, this method tries to keep the ideas away from biases and public opinions when conceptualized. 

When the options are presented in front of the team, a similar discussion to brainstorming takes place. Members here systematically weigh the risks and the benefits of the particular option and take the decision accordingly.

Even though it takes a bit longer and can get a little more cumbersome, group decision-making reduces the chances of error by an organization. It helps it achieve an overall successful operation.

Assets are resources or items that a company, enterprise or even an individual can control, and these items can be sold or used to obtain a specific price or value in the market. Broadly, there are two major categories of assets, tangible and intangible, although these further comprise many different types of assets which will be discussed later.

A tangible asset could include any item, product or real-estate property, gold and even liquid cash. So if someone owns a flat or a plot of land, that is a tangible asset to them. A car, or some expensive equipment that can yield a hefty value when sold, is also an asset meaning that these items can give you financial benefits in the future.

A singer or an artist or a writer usually holds copyrights to their artistic works, albums and books. A scientist or designer can also file patents for their scientific work, innovations in design and breakthroughs in their work. All of these comprise intangible assets. When and if necessary, such assets can be sold, or used to increase the amount of money the individual or the company has.

 

Definition of Liabilities

Liability can be implied as something that can be owned. To be specific, when it comes to business enterprises, liability is the amount of money that a business owes to several other companies.

Liability is very simple, something that is “owed”. To be specific, when it comes to business enterprises, liability is the amount of money that a business owes to several other companies. For example, a fried chicken chain outlet produces several kilos of fried chicken and food items every day. They obtain or buy their chicken and other raw materials from an external company or business. This secondary business is the “supplier”. Till the fried chicken outlet pays their chicken supplier for all the chicken and raw supplies, the company will have a liability meaning, a certain sum of money, say one lakh rupees will be recorded for the time and amount due. 

Do you know that assets and liabilities can be classified into several categories? 

 

Classification of Assets and Liabilities

The following section will throw further light on the types of assets and liabilities.

Types of Assets

Here are the several different types of assets.

Assets that can be converted into cash (the process is called liquidity) within a year are called current assets. In a balance sheet in accounting, current assets are always placed at the top. Several items can be considered as current assets which include – 

a. Cash and equivalents of cash

b. Short-term investments, such as high-yielding savings accounts or government bonds.

c. Inventories of raw materials and finished goods that can soon be converted into cash are also considered as current assets.

d. Assets held for sale and foreign currency that a person possesses are examples of very high-yielding current assets.

To Understand the Classification Better, Study the Following Table:

Fixed assets that cannot be converted into cash instantly are known as non-current assets. These provide long-term financial benefits to the owner, business or enterprise.

Non-Current Assets Include – 

a. Employee benefits provided to employees by companies and organizations, such as Provident Funds are non-current fixed assets that can yield a large amount of money after a fixed maturity period.

b. Goodwill amongst businesses and customers and between businesses is actually a lesser-known non-current asset.

c.  Real-estate property, plants, trees, orchards and equipment – all of these count as non-current assets.

d.   Intangible assets such as moral copyrights and patents.

e.   Investments in associate companies and joint ventures.

f.    Long-term financial assets such as fixed deposits.

Losses incurred and expenses that couldn’t be recorded during the financial year are considered fake assets. Some examples of fictitious assets are.

a. Promotional expenses on items

b. Discounts on the issue of shares

c. Preliminary Expenses

Task for you: Try to find different types of assets, which are not mentioned in the article, classified under each categories

 

Types of Liabilities

There are mainly two types of liabilities; let’s have a look at them.

Short-term liabilities that can be easily paid off within a year are called current liabilities. Several items can be considered under short-term liabilities.

a.  Short-term financial debts that a person or a business owes 

b.  Payable accounts

c.  Sales taxes that need to be paid

d.  Payable interests

e.  Provisions to be made for an enterprise or business

Liabilities that can be paid off over the course of many years come under the umbrella of long-term liabilities or non-current liabilities. These may be – 

a. Long term debts

b. Employee benefits

c. Other long-term payable accounts

To Help Understand, Study The Following Table:

 

Liabilities are an essential part of any organization. Try to find some other expenditures that can be labeled as liability.

 

Difference Between Assets and Liabilities

After learning the different types and examples of liabilities and assets, it’s time to take a quick look at the differences and compare the similarities.

 

If there is more that you would like to know about these and other topics in accounting, browse through our study notes and articles on accounting and commerce. You can also sign up for ‘s live online classes and kick-start your all-round academic growth. makes learning fun with videos and concepts. Install the app today.

Income is basically the money that is earned. The Income is used to fund the day-to-day expenditures.

Investments, Salaries, Pensions, and other Social Security are the primary sources of income for the retirees. For the individuals, the income is most often received in the form of wages or by salary. The Business income can refer to a company’s remaining revenues that are paid after paying all the expenses and the taxes. In this case, the income is referred to as the “earnings.” Again, this income is subject to taxation.

Difference Between National Income and Private Income

The difference table is as follows:

What is National Income?

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National income is the value of goods and services that are produced by a country in a financial year. This is the outcome of the economic activities of any country which is during a period of one year and this is valued in terms of money. The National income, national dividend, national output, and national expenditure are all synonyms.

 

The National Income is the total amount of income that accrues to a country from its economic activities in a particular year’s time. This includes payments that are made to all the resources either in the form of wages, interest, rent, and profit.

The progress of a country is to be determined by the growth of the national income of the nation. There are two types of National Income Definition:

1. Traditional Definition

2. Modern Definition

Traditional Definition

According to Marshall “The labor and capital of a country acting on its natural resources produce annually a certain net aggregate of commodities, material and immaterial including services of all kinds. The true net annual income or revenue of the country or national dividend.”

While the Modern National Income is:

Gross Domestic Product is the value of all goods which are being produced and the services that are served within a country during a year.

  Gross National Product, in order to calculate GNP, we need to collect and assess the data from all the productive activities, like the agricultural produce, wood, minerals, commodities.

What is Private Income?

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Private income is the factor of total incomes and the transfer incomes that are received from all the sources by the private sector that are the private enterprise and the households that are within or outside the country.

Private Income also includes the net factor income from abroad. The Private Sector consists of all the private enterprises and households, who are the factor owners.

 

Private income consists not only of the factor incomes which are earned within one’s own territory and abroad but also consists of all the current transfers from the country’s government and the rest of the world. This is the sum of earned incomes and the transfer incomes that are received by the private sector.

So, this concept of private income is quite broader than that of personal income as private income consists of personal income + profit tax + the undistributed profit. This is required to be kept in mind that the net factor income from abroad is also allocated to the private sector and not to the government sector.

In the Formula

Private Income = Income from domestic product accruing to private sector + Net factor income from abroad + All types of transfer incomes

= National Income – Income from domestic product accruing to Government Sector + Transfer incomes

How to Make Notes on Private and National Income?

• Go through ’s Know About The Difference Between National Income and Private Income

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• Follow the sequential order as given on the page

• Write brief and to the point sentences

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• Go through these before you sit for the test

Does have Anything on Income in Commerce?

has appropriate study material on Income. It contains Know About The Difference Between National Income and Private Income.

This page has all the relevant material that’s needed by the students of Commerce. Reading from here will clarify all doubts related to these concepts. The material has been provided on completely free of cost so that the students do not hesitate before reading the page.  It needs to be revised well and also understood in the sense in which it was intended.  Income and its different types is a crucial chapter in Commerce that needs to be studied by all students as questions can come from any part of the chapter.

The Money Market: What is It?

Money market is primarily the section of the financial market that deals in short-term debt instruments. These debt instruments include money, certificate of deposit, and forward rate agreements. In addition, commercial entities can also trade money, treasury bills, and commercial papers in the money market.

First of all, financial institutions such as banks and Non-Banking Financial Companies (NBFCs) are the main agents within this market. However, the money market also accommodates bill brokers and money dealers. These agents collectively trade using highly liquid debt instruments in this particular financial market.

The most important feature of these tools of borrowing and lending is that they can be traded in the short-term. Typically, the transactions and trading in this market happen within a period of 1-year. It ensures that there is enough cash-flow between institutions like corporations and governments. Moreover, the money market allows its players to exchange these instruments even within a single day. As a result, the assets in the money market carry immense liquidity.

For instance, let’s consider one of the simplest money market examples. There are two banks – Bank A and Bank B. In case Bank A and Bank B carry on transactions of liquid assets between them, they become a part of the money market. Additionally, the money market also helps a business raise short-term working capital by selling commercial paper.

However, in terms of treasury bills, primary dealers or wholesalers buy a bulk from the government. These treasury bills are then traded between themselves or other investors. Therefore, it becomes important to learn more about types of money market instruments.

What are the Money Market Instrument Types?

There is a wide range of money market instruments that contribute to the proper functioning of a money market. Various types of money market instruments ensure that an organisation has enough storage of short-term surplus funds. As a result, companies trade in the money market to reduce their short term deficits.

Therefore, it becomes necessary to understand the different types of money market instruments. In addition, knowing about some money market instrument types will also help one to differentiate it from capital market instruments.

Thus, the most prevailing instruments that make up the money market include the following –

Certificate of Deposits (CDs) – Individuals or businesses receive Certificate of Deposits (CDs) as a receipt for the money they deposit in banks or other financial institutions. However, they receive CDs only when they deposit a large sum of money. Also, CDs enhance the importance of the money market in several ways.

CDs are exposed to relatively lower market risks and therefore form an important aspect of short-term surplus. In addition, the interest rates offered on this short-term instrument are also higher than treasury bills.

For example, Banks usually issue CDs for a minimum price of Rs.1 lakh. Higher amounts are multiples of Rs.1 lakh. The short-term maturity period for CDs generally ranges between 7 days and 1 year.

Commercial Papers (CPs) – Commercial Papers (CPs) refer to unsecured promissory notes that companies issue for short-term working capital demands. Therefore, organisations trade CPs in the money market to raise capital to fund their business requirements.

The period of maturity for CPs usually varies between 1 day and 9 months. As a result, CPs serve as an important tool for short-term capital requirements. On top of that, these assure higher returns are subsequently traded in secondary markets.

Treasury Bills (T-Bills) – Being a zero-risk money market instrument, Treasury Bills (T Bills) are distributed by the Central Government. Even though T-Bills are risk-free instruments of transaction, the monetary returns on these are minimal.

These bills are traded in both the primary market and secondary market. In addition, T-Bills come with a maturity period of 3 months, 6 months, and 1 year consecutively.

Organisations purchase T-Bills at a lower price than its actual face value. For example, assume that you’re buying a T-Bill at Rs.98 whereas its face value is Rs.100. Therefore, you will receive exactly Rs.100 when you sell it in the money market.

However, other types of money market instruments include Banker’s Acceptance (BA) – a future payment promised by a commercial bank, and Repurchase Agreements – short-term loans for the purpose of repurchasing and selling.

Now as money market meaning is clear, it’s time to move on to the idea of capital markets. As a result, understanding the concepts in the money market will certainly help you find the money market and capital market difference.

The Capital Market: What is It?

Unlike the short-term feature of money markets, capital markets are characterised by long-term trading. As a result, corporations and governments trade debt and securities supported by equity in the capital market. The transactions in the capital market assume the form of debentures, bonds, equity, and securities.

In addition, the capital market also allows the trading of company stocks and shares. These long-term capital market instruments make up for higher returns to the investors. However, the capital market is prone to financial risks and global commercial trends. Exchange of long-term securities actively indicates the financial performance of a corporation or an economy.

Capital market comprises both primary markets and secondary markets. First of all, individuals and organisations trade new stocks and securities in the primary market. On the other hand, secondary markets allow the transaction of previously-issued debt instruments. Additionally, capital market further branches into the stock market and bond market.

The long-term element in capital markets usually involve time periods between 3 and 10 years. Therefore, assets traded in these markets have less liquidity.

For example, in investor Mr. Thomas purchases a bond with a principal value of Rs.5,000 from a company. This company offers a coupon rate of interest at 5% for a maturity period of 10 years. Therefore, Mr. Thomas will receive Rs.5,000 at the end of 10 years, along with the accumulated interest.

Therefore, capital markets form the basis of long-term trading of debt instruments securities backed by equity. However, an individual must know the types of capital market instruments to be better able to understand the difference between money market and capital market.

What are the Capital Market Instrument Types?

There are various types of capital market instruments. Additionally, these capital market instruments help companies and investors alike to trade securities conveniently. These capital market instruments have significant immunity against market risks.

Capital market tools are essential for stockbrokers, stock exchanges, independent investors, commercial banks, and mutual funds. However, the most prominent instruments of capital markets are as follows –

·   Stocks – Investors and organisations trade stocks in the stock market as a means to gain ownership in a company. Therefore, stocks are essentially equity securities that imply an investor’s proportion of ownership in a corporation.

Companies issue public offerings at stock markets such as Bombay Stock Exchange and National Stock Exchange. Consequently, investors trade stocks of multiple companies among themselves as a means to gain capital. On the other hand, stocks are an important debt instrument that helps a company acquire capital for its business operations.

Besides, stocks are exposed to market risks and their dividends vary according to market trends. Therefore, stock prices are influenced by the financial performance of a corporation in the capital market. A high performing company offers stocks at higher values.

For instance, Mr. Kapoor decides to purchase 50 shares from a company that has a stock of 500 shares. Therefore, Mr. Kapoor has a claim of 10% to the assets and income of the company.

·       Bonds – Bonds are long-term loans that investors and creditors issue to companies looking to raise capital. Bonds refer to a fixed income instrument since companies have a legal obligation to return the face value of the bonds to the investors. The maturity period of bonds usually varies between 3 years and 10 years.

However, creditors are guaranteed to receive the face value of the bond, along with the interest accumulated over the maturity period.

These capital debt instruments have either fixed or variable rates of interest at which they are traded as security assets. Corporations, municipalities, and governments trade bonds in both primary and secondary markets.

·       Debentures – Debentures are non-securitised trading instruments that form a considerable portion of capital markets. Additionally, debentures lack a collateral equivalent to its value. As a result, investors have to consider factors such as the rating and creditworthiness of organisations that issue debentures.

Similar to several categories of bonds, debentures also carry indentures – a legal contract between institutions and creditors.

On top of that, debentures are characterised by fixed or variable interest pay-outs, and a long-term maturity date. However, debentures have lower interest rates in the capital markets in comparison with other debt instruments.

Let’s suppose that a highly reputed and creditworthy corporation ABC decides to raise capital with the help of debentures. On the other hand, investors are aware of the financial reputation of ABC. Therefore, they may purchase debentures issued by ABC without collateral because they have faith that ABC will not default. Therefore, an investor is eligible to receive the principal amount and interest on the debenture without having exclusive claim to a company’s assets.

Therefore, understanding the key concepts of the money market and capital market is important to understand the differences between them. As a result, the elements of the money market vs capital market will become clear to students.

Difference Between Money Market and Capital Market

After the detailed discussion on the features and types of money and capital markets, their differences become obvious. However, the finer points of difference can be broadly classified into the following factors –

·   Trade Period – As their definitions suggest, the money market and capital market have different time frames. First of all, money markets consist of short-term transactions of Certificates of Deposits, commercial paper, and treasury. Besides, the time period for these exchanges is usually equal to or less than 1 year.

On the other hand, capital markets involve trading of capital market tools for a period between 3 years and 10 years, or even longer. As a result, capital markets fulfil the medium and long-term capital goals of corporations.

·       Market Instruments – Money and capital market instruments have different timelines for maturity. On one hand, money market instruments like CDs, CPs, BAs, and Repurchase Agreement are valid for a period between 1 day and 1 year. As a result, their liquidity factor is significant for corporations to fund their short-term capital requirements.

Contrarily, capital market instruments like shares, bonds, and debentures have a lower degree of liquidity. They contribute to long-term capital needs and are prone to changes in financial value as per appreciation and depreciation.

·       Risk Element – Money markets exhibit lower levels of financial risk because the trading of short-term assets is done within a short period of time. Therefore, money market instruments benefit corporations immensely due to their ability to withstand market risks. Additionally, these instruments are liquid, and thus can be traded in the market to minimise risks.

On the other hand, capital markets experience higher risk levels since they have a much longer period of maturity. As a result, these have an enhanced elasticity towards market and financial trends.

Another essential point of money market and capital market difference is that the former offers a comparatively lower rate of return on investment. Whereas, the rate of return on investment in capital markets is higher due to the long time period involved.

If you want to know more about the interesting differences between money markets and capital markets, visit our website today!

Frequently Asked Questions

1.  What is the Money Market?

Ans. – Money market is the part of financial markets that deals with short-term debt instruments such as liquid cash, commercial paper, Certificates of Deposit, and Banker’s Agreement.

2.  What is the Capital Market?

Ans. – Capital market is the section of financial markets that facilitates the trade of long-term debt securities such as stocks, shares, debentures, and bonds. 

3.  What is the Difference Between Money Market and Capital Market?

Ans. – The fundamental difference between money market and capital market is their timeline for maturity. Money markets deal with short-term debt instruments such as money, CDs, CPs, and Bas. On the other hand, capital markets deal with long-term securities such as shares, bonds, and debentures.

A partnership is a form of business operation that involves two or more people. The profits and liabilities of the business are shared among the partners. As per their legal contract, they contribute to the daily operations of the business while earning a salary.

What is Partnership?

Any cooperative effort started by multiple parties can be considered a partnership. Governments, corporations, non-profits, or individuals can act as parties to the deal. Individuals can set up three different kinds of partnerships. These include-

In the event that business partners decide to dissolve their partnership, they will suspend all operations in their venture and liquidate their assets.

Dissolution of Partnership

A partnership is a type of business in which two or more people come together in a formal agreement and agree to be the owners, share responsibilities for running an organization, and agree to share the profits and losses of that organization.

A partnership in India is governed by the Indian Partnership Act 1932, which oversees all aspects and functions of the partnership. As defined by this law, a partnership is an association between two or more individuals or parties who have agreed to split the profits generated by the business. The profits generated from the business are shared among all the partners or their representatives.

All rights and responsibilities delineated in this agreement pertain to each business partner. Partner agreements identify the names of both parties, the purpose for which the partnership was formed, the location of the business, the amount that each partner invested, and the proportion of profits that each partner received.

According to the Partnership Act of 1932, this partnership can be dissolved only in cases where certain predefined conditions are met, such as:

1. Dissolution by Agreement

2. Dissolution by Notice

3. Dissolution by the Court

4. Compulsory Dissolution

5. Conditional Dissolution

Difference of Dissolution of Partnership and Dissolution of Partnership Firm

A Dissolution of a partnership is different from the dissolution of a partnership firm. Partnerships are dissolved when business relations change between partners, while firms are dissolved when the relationship between partners and the firm is dissolved. Consequently, all assets and liabilities are disposed of in the appropriate way in this case.

In the context of a partnership, a dissolution can be thought of as when one of the partners ceases to be part of the business. This cannot be combined with a termination of the partnership. It is possible to define dissolution as the process of ending a partnership. Dissolving the partnership does not mean that the remaining partners are no longer partners, but that they are a completely different partnership. 

How Does a Partnership Dissolve?

Partner participation in a business operation generally ends or dissolves a partnership. There are three ways to dissolve a partnership.

• In an Act of Partnership- When one or more partners agree to dissolve the partnership at a certain time. Partnerships can be agreed upon to last for a period of five years, for example. At the end of the five-year period, the agreement can be dissolved by the partners. Occasionally, it may be mentioned that certain conditions apply to the suspension of a partner. It is possible for the partnership to dissolve if one of the partners breaks a rule. 

• Through the Operation of Law- Partnerships are governed by law and are the result of an agreement. Thus, the partnership contract can be canceled if there are any hindrances to the contract or unlawful actions. As an example, selling illegal items cannot be part of a legal partnership.

• By Court Order- The law will only allow a partnership to dissolve when there is no partner working, a partner breaching an agreement, a partner who is mentally unstable and the partner has misbehaved in a manner that impacts the partnership.

• Dissolution Statement- The statement needs to be filed with the secretary of state. Access to the form is available on the secretary of state’s website. Name, date, and dissolution reason must all be included on the form.

• Individual Notification- Individual creditors of the partnership will need to receive notice in writing. Publicize the partnership announcement in a newspaper and inform all parties involved in the partnership. 

The Dissolution Can Occur for Various Reasons. Some of the Primary Reasons are:

• In case any changes are to be made in the current profit sharing ratio among partners.

• If a partner retires or expires

• When a new partner joins the business

• In case a partner goes bankrupt

• If a partnership was formed for a particular objective or goal and it has been fulfilled.

• In case a partnership was established for a specific time, then after that period it can be dissolved

What is a Partnership Dissolution Deed?

A deed for partnership dissolution is the legal document that allows dissolving a partnership. This deed is available in various formats depending on the condition of this dissolution.

Dissolution of partnership is a broad topic as it comprises several different factors. This article is a brief insight into the matter and covers every aspect of it. If you want to learn more on this topic, visit the official website of .