For this reason, when a firm is dissolved a partner who has contributed only skill is not entitled to share in the ultimate distribution of the capital of the firm. Accordingly, when the firm's debts are paid the capital remaining is returned to the other part ners in the proportion in which they contributed it. But the partner who has contributed only ability or skill is still liable for his share of the loss in capital.
It should also be noted that the expression, firm property, is not synonymous with firm capital. The amount of firm capital is specified by the articles of copartnership ; it is a fixed sum. But the firm prop erty varies from time to time; it may be greater or less than the firm capital. The firm capital may, how ever, be increased or decreased, provided the consent of all of the partners is obtained.
5. Partnership good-will.—The good-will of a trad ing firm is an asset it is only right that the estate of a deceased partner should share. Accord ing to the old common-law doctrine, the good-will of a firm reverted, upon the dissolution of the firm, to the surviving members, but this extremely harsh and unjust rule has now been modified. It is well to pro vide in the partnership articles for the method to be employed in valuing the good-will of a business upon the death or retirement of a partner.
It seems, however, that in the case of a non-trading partnership, good-will, as a firm asset, is not recog nized. The following is the opinion of Judge Storey on the subject: It seems that good-will can constitute a part of the part nership effects or interests only in cases of a mere commercial business or trade, and not in cases of professional business, which is almost necessarily connected with personal skill and confidence in the particular partner.
6. Unincorporated associations and societies.— Labor unions, societies, clubs and charitable and edu cational institutions are frequently organized as un incorporated associations. The capital funds of such associations are obtained thru contributions, bequests, legacies, and membership dues. The proprietary in terest will be represented by the balance standing to the credit of the dues account, augmented by the surplus of operations of the preceding period carried to the credit of the capital surplus account, and further increased by any balances that there may be in re serve accounts. Organizations of this type frequently
receive gifts, which may be restricted or unrestricted. The former will include gifts for special purposes, or permanent funds created by the organization itself. The latter will include gifts made with the stipula tion that they be used to meet the current expenses of the organization. The amounts contributed for spe cial uses to organizations of this type are sometimes credited to reserve accounts. The term "reserve" is not appropriately applied to items of this character, because that expression has a special meaning in ac counting terminology—it suggests a reservation of profit or surplus. Furthermore, the term, as it is gen erally used, does not convey the idea of the organiza tion's responsibility in accepting gifts that are given with the understanding that the organization shall use the principal or income for a certain purpose, which is specified.
For example, let us assume that John Smith left by will to the Memorial Hospital the sum of $2,000,000, of which $1,500,000 was to be used for the purpose of erecting a new surgical building to be known as the Smith Memorial Surgery. The will also provided that the balance of the bequest was to be used for the purpose of establishing an endowment. Only the in come of this endowment was to be applied to the maintenance of the new building. Upon the accept ance of such a gift, the trustees of the institution would have a duty to preserve intact the principal of the endowment for the building, and to invest the gift in accordance with the provisions of the trust.
The accounts of the institution should at all times reflect the amount of the gift, as well as the disposition which is made of it. It will be noted, also, that the gifts are of a different nature. The larger is for a permanent endowment to be invested in a non-pro ductive asset—non-productive in the sense that it is not to be invested in interest-bearing securities. The smaller gift must be invested in interest-bearing se curities; the principal sum must be preserved intact, and only the income from it is to be used for the cur rent purposes of the organization.