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My partnership firm incorporated in the year 2015-16 was closed in less than a year as my partner did not manage it well and the entire amount invested in the business turned into the loss, he then resigned and walked out. While going he asked for the settlement amount of his contribution as the business was still open at that time. We gave him in writing that we will give him INR 5 Lakhs as full and final settlement amount after 1 year if business starts making profit. But we did not mention that "If it starts earning the profit".

Section 48 of Partnership Act 1932 clearly states about the Mode of Dissolution of account between parties –In settling the accounts of a firm after dissolution, the following –

 (a) losses, including deficiencies of capital, shall be paid first out of profits, next out of capital, and, lastly, if necessary, by t...

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