Partnership firm is compulsorily dissolved:

Question

Accepted Answer

The correct option is 1:
If the business of the firm has become illegal.

This is the most accurate answer because it is a direct provision for **Compulsory Dissolution** under Section 41 of the Indian Partnership Act, 1932. The core object of a partnership is to carry on a lawful business with a view to profit. If, after the firm is formed, the business itself becomes unlawful—for instance, due to a change in law or government policy—the very foundation of the partnership agreement is destroyed. In such a scenario, the law mandates the immediate dissolution of the firm, and no partner can object to it. It is an event that makes it legally impossible for the partnership to continue its operations.

The incorrect option is 2:
If number of partners in a firm has become more than 50.

Exceeding the maximum limit of 50 partners (as stipulated by the Companies Act, 2013, read with relevant rules) causes the firm to become an 'illegal association.' While an illegal association is required to be wound up, which effectively results in the cessation of business, the primary legal provision for **Compulsory Dissolution** in the Partnership Act (Section 41) focuses on the illegality of the *business* or the insolvency of partners, not the count of partners. Therefore, while it leads to the firm's termination, it is a breach of the Companies Act's limits on an unincorporated association, a distinct legal issue from the foundational illegality of the business itself. The most precise answer relating to Section 41 of the Partnership Act remains the illegality of the business.

The incorrect option is 3:
If reorganisation of profit sharing ratio between partners is done.

This event is known as a **Reconstitution of the Partnership Firm**, not a dissolution of the firm. Reconstitution means the existing partnership agreement comes to an end and a new agreement takes effect; however, the business of the firm continues without any winding up of assets and liabilities. The change in the profit-sharing ratio is merely a change in the relationship between the partners and does not legally force the cessation of the entire firm's business operations. A firm is dissolved only when the business relationship between *all* the partners comes to an end.

The incorrect option is 4:
Either (1) or (2) circumstances arise.

This is incorrect because Option 1 is the most fundamental and direct cause of compulsory dissolution explicitly covered under the Indian Partnership Act, 1932. In a multiple-choice setting, the option representing the core legal ground (illegality of the business) is generally preferred over a composite option that includes a condition (exceeding 50 partners) which, while also leading to termination, is a distinct statutory offense defined under the Companies Act. Since Option 1 is a compulsory dissolution event under the Partnership Act itself, it is the best, most direct, and sufficient answer.