Discuss the term ‘Goodwill’ of a firm. Whether the godwill survives on death ? What are the rights and duties of the seller and buyer of the Goodwill ?
Ans. Meaning of Goodwill—It may be “noted that the firm’s property generally includes goodwill so far as it exists and has exchangeable, value. The term Goodwill is no where defined in the Act. In Land Revenue Commissioner Vs. Matiar and Co., Lord Macnaugbten described it as a thing very easy to describe but very difficult to define. It may be the advantage which is acquired by a business beyond the mere value of the capital, stock, fund or property employed therein as a result of the general public patronage and encouragement that it receives from constant or habitual customers. The goodwill of a firm means tht whole advantage, whatever it may be of the reputation and connection of the firm which may have been built up by years of honest work or gained by,lavish expenditure of money. Goodwill represents business reputation which is a complex of personal reputation, local reputations and objective reputation of the product of the business. Which one of those elements will predominate will depend on the facts and circumstances of each case. It may be noted that S. 14 of the Partnership Act makes it expressly clear that the Goodwill of the business of the firm is, in the absence of a contract to the contrary, deemed to be the property of the firm. The goodwill of a partnership, in so far as it has a pecuniary value, is partnership property unless the contrary can be shown. Hence, on the dissolution it should be included in the assets and brought into the common stock and person suing a share of partnership asset is entitled to a share in goodwill as well.
Whether Goodwill Survives on Death ?—The old concept was that on the death of a partner, the goodwill of the firm survives to the surviving partners. But according to the provisions of Partnership Act it is a wrong notion that the value of the goodwill belongs to the survivors i.e., remaining partners. Now S. 14 of theAct makes it clear that goodwill is a property of the firm and like all other property it devolves upon the heirs of the deceased partner and the representatives of the deceased partner would be entitled to have the goodwill of the business and along with the other assets of the firm for the purpose of the division between the representatives of the deceased and surviving partners. Similar provisions apply in case of retirement of a partner. A partner on his retirement may get a share in the goodwill of the firm. Thus, it can be concluded that on the death or retirement of a partner, the goodwill of the firm does not survive to the surviving partners but it devolves on the legal heirs of the deceased in the case of death of a former partner and on the retirement of a partner, that retiring partner is entitled to a share in the goodwill of the firm.