Indian Partnership Act
Property of the Firm: Sections 14 and 15
A firm is not a person, so it cannot own anything in the strict sense. Yet the Act speaks throughout of the property of the firm, and a great deal turns on what falls inside that pool: who may use it, who may sell it, what a partner may claim, and what happens on dissolution. Section 14 says what firm property includes, with a presumption for anything bought with the firm's money. Section 15 says it must be used exclusively for the business. And the Supreme Court has settled what a partner's interest in it really is. This note covers all of that.
What flows into the pool of firm property, a partner's interest in it, the Addanki principle, and the practical points on immovable property
1. What Constitutes Firm Property: Section 14
§ Section 14 Subject to contract between the partners, the property of the firm includes all property and rights and interests in property originally brought into the stock of the firm, or acquired, by purchase or otherwise, by or for the firm, or for the purposes and in the course of the business of the firm, and includes also the goodwill of the business. Explanation. Unless the contrary intention appears, property and rights and interests in property acquired with money belonging to the firm are deemed to have been acquired for the firm. |
Source | Examples | Point to note |
|---|---|---|
Brought into the stock of the firm | A partner's shop premises, machinery or vehicle contributed as capital | Intention is decisive: bringing property into the firm is a change of character, not a sale to a separate person |
Acquired by or for the firm | Goods, equipment, a lease taken for the business | The name in which it stands is not conclusive |
Acquired for the purposes and in the course of business | Stock in trade, receivables, licences, tenancy rights | Includes things that come in through the business itself |
Goodwill | The firm's reputation and connection | Expressly included; saleable on dissolution under Section 55 |
Bought with firm money | A flat bought in one partner's name out of the firm's bank account | Presumed to be firm property unless a contrary intention appears |
- Subject to contract. Partners may agree that a particular asset, though used by the firm, remains the private property of a partner; the deed and the accounts should say so.
2. Property in an Individual Partner's Name
§ How the courts decide • The source of the money. If it came from the firm, the Explanation to Section 14 raises a presumption in the firm's favour. • The entries in the books. Whether the asset appears in the firm's balance sheet, and how the purchase and its outgoings are recorded. • The use made of it. Whether the firm occupies, insures, repairs and pays taxes on it. • The intention of the partners, gathered from the deed, correspondence and conduct. • The consequence. If it is firm property, the partner holding the title holds it for the firm; he cannot sell it as his own, and on dissolution it goes into the settlement under Section 48. |
3. Use of Firm Property: Section 15
i. The rule. 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.
ii. Personal use. A partner who uses firm property for himself must account for the profit under Section 16(a), and may be restrained from continuing.
iii. Not a licence to deal. Use is not the same as disposal: selling or transferring the firm's immovable property is outside implied authority under Section 19(2).
4. A Partner's Interest in Firm Property
📖 Addanki Narayanappa v Bhaskara Krishnappa, AIR 1966 SC 1300 The Supreme Court held that during the subsistence of a partnership no partner can point to any particular asset and say it is his. His right is to obtain, on dissolution, the value of his share in the net assets after debts and prior claims are met. It follows that a partner's interest in the firm is movable property, even where the firm's assets include immovable property, and a deed by which a partner relinquishes his share does not require registration merely because of that. |
Question | The answer |
|---|---|
Does a partner own a share in each asset? | No. He has an interest in the firm as a whole |
What can he claim while the firm runs? | To take part, to have the property used for the firm, and to share profits |
What can he claim on dissolution? | A share in the surplus after debts, advances and capital are dealt with under Section 48 |
Can he transfer his interest? | Yes, but the transferee gets only the rights in Section 29, not the position of a partner |
Is his interest movable or immovable? | Movable, whatever the firm owns: Addanki Narayanappa (1966) |
5. Conversion, Both Ways
§ Changing the character of property Individual into firm property. By agreement, express or inferred from conduct, book entries, accounts and the use made of the asset. No conveyance to a separate person is needed, because the firm is not a separate person. Firm into individual property. By agreement of all the partners, typically on retirement or dissolution, when an asset is allotted to one of them. Evidence matters. Because no deed is strictly required between partners, disputes turn on the books, the deed and the conduct; record the intention clearly. Third parties and tax. Conversion may have consequences in tax and stamp law, and creditors' rights over the asset are not defeated by a change in its internal character. |
6. Immovable Property: Practical Points
i. Registration. A partner's interest in the firm is movable property, so a release or assignment of his share does not require registration merely because the firm owns land: Addanki Narayanappa.
ii. Sale by one partner. Transferring the firm's immovable property is outside implied authority; express authority, or the concurrence of all partners, is required: Section 19(2).
iii. On dissolution. Immovable property is realised or divided as part of the settlement of accounts under Section 48; a document dividing specific properties between partners should be drawn with stamp duty and registration in mind.
iv. Title records. Where a firm buys land, the deed and the firm's books should make clear that the purchase is for the firm, whoever holds the title.
7. Frequently Asked Questions
What is the property of a firm?
Under Section 14, property brought into the stock of the firm, acquired by or for the firm, or acquired for the purposes and in the course of the business, including goodwill.
Is property bought in a partner's name with firm money firm property?
Yes, unless a contrary intention appears, under the Explanation to Section 14.
Does a partner own a share in a particular asset of the firm?
No. His interest is in the firm as a whole, and is movable property, as held in Addanki Narayanappa.
Can one partner sell the firm's immovable property?
Not under his implied authority; Section 19(2) requires express authority.