Partnership Property

In general, partnership property consists of all the property contributed by the

partners or acquired for the partnership with its funds. A partnership may own
real property as well as personal property. Partners hold title to partnership
property by tenancy in partnership or tenants in common. This means that each
partner has an equal right to use the partnership property for partnership
purposes unless there is an agreement to the contrary. Also, a partner
possesses no interest in any specific item of partnership property. (For example,
a partner does not own 10% of the personal computer which his secretary
uses.) A creditor of the partner cannot proceed against any specific items of
partnership property. A creditor can only proceed against the partner’s interest in
the partnership.

INDIAN PARTNERSHIP
ACT 1932 (PART IVB)
PARTNERSHIP PROPERTY
It is essential to settle out legally what is the property of the firm.
Assignment and dealings with the firm property by the partners has to
be in accordance with the law. Theoretically, a firm is not a legal
person and therefore the property of the firm is actually the joint
property of the partners. Thus, it is proper to decide beforehand what
actually the property of the firm is.

Section 14 says that subject to a contract between the partners, the

property of the firm includes:

a) All the property and rights and interests in property originally

brought into the stock of the firm. Therefore, whatever property is
thrown into the common stock at the commencement of business
becomes the property of the firm. Goodwill and trademarks are
included in the property of the firm. Unless there is a contract to the
contrary, the trademark is a part of the partnership firm. Good will
does not belong to any individual partner of the firm but to the entire
firm collectively.

Upon a partner’s death, the share in the good will and property of the
firm will devolve onto his heirs in proportion to his share in the firm.

b) All the property acquired subsequently by purchase or otherwise by

or for the firm, or for the purposes and in the course of the business of
the firm. Even where the partner buys in his own name but through the
firm’s money, there will be a presumption that the property belongs to
the firm. Where property is acquired by the firm money in breach of
duty and without the consent of the other partners, the property is still
presumed to be the firm’s property.

i) Cases where a partner’s property is in the use of the firm

have to be decided as per the facts of each individual case. The
intention of the parties is very important here.

ii) Conversion of joint into separate property. Here the

property is purchased with the partnership money but in the name and
the sole benefit of a partner he becomes a debtor to the firm and the
property is his.

The Act leaves the question of determination of partnership property

upon the intention of the partners. For example, if a managing
partners buys a house will the firm money, the house will belong to the
firm. If a partner allows gratuitous use of his house as premises for the
firm to carry on business, the house will not become the property of
the firm. Even if rent is paid for the same, the ownership will still vest
in the person who let the house.

The Supreme Court has held in many cases that if partners purchase
a property for the partnership firm, they will not become co-owners.
The property will be treated as property of the firm. Every case is
decided based upon its individual circumstances and facts that help
determine the intention behind buying the property, use intended for
the property as well as whether it was treated as property of the firm.
In cases where a partner has made investments with his own money
and created own assets in a business before starting a partnership
firm for the same, the result varies. First, we have to check whether
the agreement between asset holder and other partner(s) is a
partnership agreement or a mere agreement of service. If his
investment is not offset or adjusted with the share of profits being
assigned to him every year, the property remains personal. If the
investment has been returned by the assets of the firm and the profit it
generates, the property will belong to the firm.

As Section 15 of the Act, the property of a firm is held and used by the
partners exclusively for business of the firm only subject to a contract
to the contrary between the partners.