A firm is dissolved compulsorily in the following cases:

(A) When all the partners or all but one partner, become insolvent, rendering them incompetent to sign a contract.

(B) When the business of the firm becomes illegal

(C) Change in existing profit sharing ratio among partners

(D) When some event has taken place which makes it unlawful for the partners to carry on the business of the firm in partnership.

Choose the correct answer from the options given below:

According to the Indian Partnership Act, 1932, compulsory dissolution occurs when the law mandates the dissolution of a firm due to certain circumstances.

Let's examine each statement:

(A) All partners or all but one become insolvent - When partners become insolvent, they become incompetent to contract. Since a partnership requires contractual capacity, the firm must be dissolved compulsorily. This is a case of compulsory dissolution. ✓

(B) Business of the firm becomes illegal - If the nature of business becomes illegal (say, due to a new law banning that business), the partnership cannot continue. The firm must be dissolved compulsorily. ✓

(C) Change in profit sharing ratio - This is merely a reconstitution of partnership, not dissolution. The firm continues to exist with modified terms among the same partners. The partnership deed is altered but the firm remains intact. This is NOT compulsory dissolution. ✗

(D) Event making it unlawful to carry on business in partnership - This covers situations where continuing the partnership becomes unlawful (for example, if partners become alien enemies during war). The firm must be dissolved compulsorily. ✓

Statements (A), (B), and (D) represent cases of compulsory dissolution under Section 41 of the Partnership Act, while (C) is a case of reconstitution.

Correct Answer: Option 1 - (A), (B) and (D) only