Page 163 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes conduct of the firm’s business without any remuneration [s.13 (a)]. (iv) If restrained by an
agreement with other partners, a partner has a duty not to carry on any business other than that
of the firm while he is a partner [s.11 (2)]. (v) If a partner carries on any business competing with
that of the firm, he shall account for and pay to the firm all profits made by him in that business
[s.16 (b)]. (vi) To account for any profit, including secret profit, derived by a partner from any
transaction of the firm, or from the use of the property, or business connection of the firm or the
firm’s name [s.16 (a)]. (vii) Not to assign his share in the partnership. Where a partner makes
such an assignment the partnership may be dissolved. (viii) Unless otherwise agreed, he is to
contribute equally to the losses of the firm. (ix) To indemnify the firm for any loss caused to it by
his wilful neglect in the conduct of the business of the firm (s.13).

6.4.3 Firm’s Property

Sometimes it becomes necessary to distinguish the joint property of the partners (i.e., firm’s
property) from the personal property of the partners. For example, on the dissolution of a firm,
the firm’s debts are first paid out of the joint assets of the partners. Also, firm’s property can be
used only for the purposes of the business of the firm. A partner cannot treat the firm’s property
or a part thereof as his own. Further, he cannot assign his interest in firm’s property to anyone.
Furthermore, some personal property of one or more partners may be employed or used for the
purpose of the firm.

Example: A was the owner of a colliery. A joined hands in partnership with B for the
purpose of working the colliery. They shared the profits of the venture. The colliery does not
become the property of the firm; it continues to be A’s personal property.
It is open to the partners to agree among themselves as to what shall be the property of the firm.
Section 14 lays down rules for determining the intention of the partners for this purpose. Thus,
in the absence an agreement to the contrary, the firm’s property includes: (i) all property originally
brought into the common stock of the firm; (ii) all rights or interests in the property, originally
so brought; (iii) all property acquired, by purchase or otherwise, by or for the firm and all rights
and interests in any property so acquired; (iv) all property acquired for the purpose and in the
course of the business of the firm and all rights and interests in any property so acquired; and
(v) goodwill of the business of the firm.
Section 14 further provides that, unless intention to the contrary appears, property and rights
and interests in property acquired with money belonging to the firm are deemed to be property
of the firm.

Example: A and B are the partners. A buys some shares in a company with money
belonging to the firm. The shares constitute firm’s property.

Example: A and B are partners. They buy a property in the name of a fictitious person
with money belonging to the firm. The property shall be deemed to be the firm’s property.

Example: A is the owner of a colliery. He enters into partnership with B for working the
colliery. He sells the same to the firm. Colliery becomes the firm’s property.

6.4.4 Firm’s Goodwill

Section 14 further provides that the property of a firm, subject to the contract between the
partners, includes the goodwill of the business. As it is a part of the partnership property, it can
be sold either separately or along with the other property of the firm (s.55 (1)].

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