VIII. Partnerships
24.A67. A partner who receives a return from a partnership which is less than a fair proportion of the profits of the partnership, having regard to his contribution of property and capital, has made gifts to the other partners. The provisions necessary in this context to identify and determine the amount of the gifts are special applications of the general principles that it is proposed should apply to gifts involving the use of property and loans of money for inadequate consideration.
24.A68. It is not uncommon for a partnership agreement to contain a clause that the interest in the partnership of a
partner may be acquired by the remaining partners on his retirement or death at a price determined in accordance with
the agreement. The provisions regarding options, outlined in paragraphs 24.A14–24.A24, would have some application. In
the Committee's view, it is more appropriate that there should be special provisions to govern the effect of such a
clause. These special provisions
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would follow the principles adopted in relation to limited interests and
those proposed later, in paragraph 24.A89, in regard to shares. They would require that the clause by which the
remaining partners are entitled to acquire the interest should be ignored in determining the value of the interest of
the retiring or deceased partner.
24.A69. A partnership agreement may require that the value of goodwill should be ignored in fixing the price payable by the remaining partners in respect of the interest of the retiring or deceased partner. There is a strong argument that in the case of a professional partnership goodwill is personal to the retiring or deceased partner so that it adds nothing to the value of his interest in the partnership, whether or not the partnership agreement has any requirement that it be treated as having no value.