Property of the Firm

You know that all partners are joint owners of the property of the firm (unless there is all agreement to the contrary) and it should be held and used exclusively for the firm by the partners, Hence, it becomes necessary to ascertain what constitutes the property of the firm. 




Normally the partners, by an agreement, are free to determine as to what shall be the property of the firm and what shall be treated as a separate property of one or more of the partners. But, when there is no such agreement, and you want to know whether a certain property is the property of the firm or not, you will have to ascertain the source from which the property had been acquired, the purpose for which it was acquired and the manner in which it has been dealt with. According to Section 14, when there is no contract to the contrary, the property of the firm includes:

i) all properties, rights and interests originally brought to the stock of the firm,

ii) the property acquired by purchase or otherwise by or for the firm,

iii) the property acquired with money belonging to the firm, and

iv) the goodwill of the business of the firm.

Thus, whatever is brought to the common stock of the firm and whatever is added to or obtained by means of this common stock during the continuance of partnership either directly or by conduct of business, is included in the property of the firm unless a contrary intention can be shown. However, if a partner’s property is used for the purpose of the business of the firm it does not automatically become the property of the firm. It can only become the property of the firm if the partners show an intention to make it so. For example, a piece of land which is bought in the name of one partner but is paid for by the firm (or out of the profits of the firm) shall be deemed to be the property of the firm unless there is an intention to the contrary. Similarly, if two persons take a lease of a coal mine for the purpose of working it in partnership, the lease will be treated as the property of the firm.

 

Relation Of Partners with Third Parties

Mutual agency is an essential element of partnership. Each partner acts both as the agent and the principal. It is this position of the partners which governs their relationship with the third parties. Section 18 clearly states that from the point of view of the third parties, a partner is an agent of the firm, for the purposes of the business of the firm. In that capacity, he binds all other partners by his acts done on behalf of the firm provided these are done in the ordinary course of business and in the name of the firm. So, all partners are liable to third parties for such acts.


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