Legal Status of the Firm
An inactive firm continues to exist in law until it is formally dissolved through mutual agreement or court order.

• The firm remains a legal entity, and partners are still bound by obligations
  
• The partnership deed remains in force unless cancelled or amended
  
• Partners may still be liable for prior debts and pending legal matters
  
• If the firm is registered, the Registrar of Firms must be notified of inactivity
  
• Silence or abandonment without formal steps does not terminate legal status
  

Tax and Compliance Requirements
An inactive firm is still required to comply with certain tax filings, even if no revenue is generated.

• Income tax returns must be filed annually, marking the firm as “no activity” or “nil return.”
  
• GST returns (if registered) must continue to be filed, even as NIL
  
• Non-filing can lead to penalties, late fees, or cancellation of registration
  
• PAN remains active, and any notices from the Income Tax Department must be addressed
  
• Audits may still be required based on turnover history or tax notices
  

Financial and Banking Consequences
If a firm becomes inactive, its bank accounts and licenses may become dormant or expire.

• Banks may treat accounts as inactive after 6–12 months of no transactions
  
• Unused accounts may be frozen and require reactivation or closure
  
• Licenses like Shops & Establishments, MSME, or GST may be automatically cancelled or suspended
  
• Credit facilities, if any, may lapse or require renewal
  
• Insurance and vendor contracts may become invalid without renewal
  

Risk of Misuse and Legal Exposure
Failing to dissolve an inactive firm properly may lead to fraudulent misuse or unintended liabilities.

• The firm’s name and PAN could be misused if not deactivated
  
• Past partners may be held responsible for new liabilities or claims
  
• Creditors may pursue pending dues despite inactivity
  
• Any partner can be liable for old obligations unless formally discharged
  
• Public notice of dissolution is critical to limit post-inactivity liability
  

Options for Closure or Revival
Partners must decide whether to revive or formally close the firm, depending on future plans.

• If revival is intended, update licenses, deed terms, and inform stakeholders
  
• For permanent closure, execute a partnership dissolution agreement
  
• File a notice of dissolution with the Registrar of Firms (if registered)
  
• Cancel tax registrations like GST and close the firm’s bank accounts
  
• Clear all dues, settle accounts, and inform clients or suppliers