The Property of the firm Section 14 - Indian Partnership Act 1932 - CA Foundation

Indian Partnership Act 1932 - CA Foundation
The Property of the firm Section 14
The expression ‘property of the firm’, also referred to as ‘partnership property’, ‘partnership assets’, ‘joint stock’, ‘common stock’ or ‘joint estate’, denotes all property, rights and interests to which the firm, that is, all partners collectively, may be entitled.

The property which is deemed as belonging to the firm, in the absence of any agreement between the partners showing contrary intention, is comprised of the following items:
(i) all property, rights and interests which partners may have brought into the common stock as their contribution to the common business;
(ii) all the property, rights and interest acquired or purchased by or for the firm, or for the purposes and in the course of the business of the firm; and
(iii) Goodwill of the business.

The determination of the question whether a particular property is or is not ‘property’ of the firm ultimately depends on the real intention or agreement of the partners.

Thus, the mere fact that the property of a partner is being used for the purposes of the firm shall not by itself make it partnership property, unless it is intended to be treated as such.

Partners may, by an agreement at any time, convert the property of any partner or partners (and such conversion, if made in good faith, would be effectual between the partners and against the creditors of the firm) or the separate property of any partner into a partnership property.

Goodwill
Section 14 specifically lays down that the goodwill of a business is subject to a contract between the partners, to be regarded as ‘property’ of the ‘firm’. But this Section does not define the term Goodwill.

However, Goodwill may be defined as the value of the reputation of a business house in respect of profits expected in future over and above the normal level of profits earned by undertaking belonging to the same class of business.

When a partnership firm is dissolved every partner has a right, in the absence of any agreement to the contrary, to have the goodwill of business sold for the benefit of all the partners.

Goodwill is a part of the property of the firm. It can be sold separately or along with the other properties of the firm. Any partner may upon the sale of the goodwill of a firm, make an agreement with the buyer that such partner will not carry on any business similar to that of the firm
-within a specified period or
-within specified local limits
notwithstanding anything contained in Section 27 of the Indian Contract Act, 1872. Such agreement shall be valid if the restrictions imposed are reasonable.

Property of a partner
Where the property is exclusively belonging to a person, it does not become a property of the partnership merely because it is used for the business of the partnership, such property will become property of the partnership if there is an agreement.

Application of The Property of The Firm (Section 15) Subject to contract between the partners, the property of the firm shall be held and used by the partners exclusively for the purposes of the business.

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