When Paul Castledine retired as an equity partner of RSM Bentley Jennison, a firm of chartered accountants, he was entitled to be paid out an amount representing the value of his share of the firm. He thought this included an equal share of the goodwill of the partnership, which was recorded on the firm’s balance sheet.

Judge Cooke of the English Chancery division found that Casteldine’s pay-out did not extend to a share of the goodwill. While ‘that most elusive of assets, partnership goodwill,’ is ‘a thing very easy to describe, [but] very difficult to define’, it is often among a firm’s most valuable assets; it is therefore ‘essential that the [partnership] agreement deals with its ownership and ... its protection in the event of one or more partners leaving the firm’.

As in this instance. While Castledine had signed the partnership agreement in 1999, the fact that he thus became an ‘equity partner’ didn’t mean he became entitled automatically to an equal share of all partnership assets (including goodwill). ‘Equity partner’ is not a term of art but means only what the specific partnership agreement says it means. In fact, goodwill was apportioned in a separate agreement which Casteldine had not signed, so his claim for a share of it had to fail: Castledine v RSM Bentley Jennison (a firm), [2011] EWHC 2363 (Ch). [Link available here].