Liability of estate of a deceased person (Section 35)
Generally, the partnership comes to end on the death of a partner but if there is a contract between partners to continue with the partnership on the death of a partner then surviving partner continues with the business after clearing the deceased partner estate from any liability for the future acts of the firms.
Death of a partner:
On the death of a partner, subject to any contract to the contrary, the partnership ceases to exist. Here, the contract to the contrary means the partnership need not be dissolved if it is expressly mentioned in the partnership deed that the remaining partners (not partner) can continue the firmÕs business.
On the other hand, if one of the two partners of a firm dies, the firm automatically comes to an end and, thereafter, there is no partnership for a third party to be introduced therein and, therefore, there is no scope for applying cl. (c) of s. 42 to such a situation. When there are only two partners in a firm, on the death of one partner, the firm is deemed to be dissolved despite the existence of any clause which says otherwise. In other words, in a partnership firm of two partners, when one of the partners dies then the partnership automatically dissolved even if the deed of partnership was made clearly instructed to appoint the heir of the deceased as a new partner.
As per the wishes of the directions of the deceased partner, the surviving partner may enter into a new partnership with the heir of the deceased partner, but that would constitute a new partnership.
Reference: Dissolution of a firm
Section 39 to 44 deals with the Dissolution of a firm.
Sometimes circumstances arise when the firm gets dissolved. Sometimes a firm is dissolved voluntary or by the order from the court. There are various modes prescribed under Section 39 to 44 for the dissolution of a partnership firm. Even when the partnership is dissolved then it gives certain rights and liabilities to the partners.