Partnership property
Whether property becomes partnership property or
remains in the separate ownership of a particular part-
ner depends upon the intention of the partners. Ideally
this intention should be made absolutely clear in the
partnership agreement if there is one. If property is
treated as partnership property, it becomes an asset
of the firm and is transferred to all the partners as
co-owners.
Under ss 20 and 21 of the 1890 Act, and in the absence
of an express agreement to the contrary, property will be
regarded as partnership property if:
■it is purchased with partnership money, as by a
cheque drawn on the firm’s account;
■it is brought into the firm by a partner who has the
value of it credited to his capital account, which
clearly indicates the intention to bring it in;
■it is treated as an essential part of the firm’s property
by the partners; but the mere fact that the property
is used in the business is not enough to transfer that
property to the firm. This statement is supported by
the following case.
In normal circumstances there is no doubt about
the ownership at least of the major assets of the firm.
For example, a lease of premises from which to conduct
business would be bought with the firm’s money and
transferred into the names of some or all of the partners
to hold as trustees for themselves and others as partners.
The device of the trust is required because, as we know,
an ordinary partnership is not a persona at law. The
problems outlined above arise when, say, the lease is
used as business premises but is held in the name of one
partner who has allowed its use within the firm. Does
he hold it on an implied trust for himself and the others
or not? That is the question which a court may have
to decide.The commercial importance of identifying
partnership property
The ability to identify partnership property is important
in the business world:
1 To the partners themselves,because any increase in
value of partnership property belongs to the firm (i.e. allPart 2Business organisations
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of the mill and machinery, i.e. the major assets, was to
be deducted before the profit was calculated.
The partnership lasted for 10 years and no deprecia-
tion was charged on the mill and machinery. The £150
per annum was paid to the sons but it was charged
against the profits of the business and not against the
father’s share. Each partner was credited with interest
on capital, not merely the father, but, as it happens,
the profit was divided into thirds. Later on the court
was asked to decide whether the assets of the business
still belonged to the father or whether they belonged to
the firm as partnership property. The court decided
that the way in which the partners had dealt with each
other was evidence of a new agreement. The assets
were therefore partnership property, even though the
articles had said that they were to continue to belong to
the father.
Comment. The major change here was to allow each
partner interest on capital although only the father brought
any in. From this the court presumed that the father’s
capital had become partnership property and had not
remained his personal property, as was the original
intention in the agreement.Miles v Clarke (1953)Mr Clarke wished to start a photography business and
he took a lease of premises for the purpose. He was not
a skilled photographer and employed other people to do
the photography work. The business made a loss but
after some negotiations Mr Miles, who was a successful
freelance photographer, decided to join in with Mr Clarke.
Miles brought in his customers and there were a large
number of these. The agreement made between Miles
and Clarke provided that the profits were to be shared
equally and that Miles was to draw £153 per month on
account of his profits. The business did well but Miles
and Clarke quarrelled and it had to be wound up. In this
action the court was asked to decide the ownership of
the assets and Miles was claiming a share in all the
assets of the business. The court decided that there was
no agreement except as to the way profits were to be
divided and so the stock in trade of the firm and other
consumable items, such as films, must be considered as
part of the partnership assets, even though they were
brought in by Clarke. However, the lease and other plant
and equipment should be treated as belonging to the
partner who brought them in – that was Clarke. The per-
sonal goodwill, i.e. customers, belonged to the person
who brought them in, so Miles retained the value of his
customers and Clarke retained the value of his.