Concept:A partnership is built on mutual trust and the personal capacity of the partners, so events that destroy that capacity dissolve the firm.
Explanation:The death, insanity, or insolvency of a partner automatically dissolves the partnership.
An employee is not a partner, so the death or resignation of an employee does not affect the partnership.
The liquidity of the firm means having enough cash to pay debts, but it is not a direct cause of dissolution.
Insanity of a partner removes their legal capacity to act and contract, making it impossible to continue the partnership.
Therefore, the correct reason for dissolution is the insanity of a partner.
Answer:C. insanity of a partner