Business Organisations - Week One - Partnerships

Question 1

Define the term partnership?

Answer 1

A relationship that exists between people, often with a common view of making profits

Question 2

Where in statute is partnership defined?

Answer 2

s 1 Partnership Act 1892 (NSW)

Question 3

What is the limit of people allowed in a partnership? Which statute is this defined in?

Answer 3

No more than 20 people, s 115 of the Corporations Act 2001 (Cth)

Question 4

Is a partnership agreement a form of contract/matter of contract?

Answer 4

Yes, a partnership agreement is a contract whereby partners enter into an agreement (contract) regarding how to conduct business.

Question 5

What forms may a partnership agreement take?

Answer 5

A partnership agreement may be formal, partly oral, purely oral or written

Question 6

When can a partnership override the Partnership Act 1892 (NSW)?

Answer 6

When the contract agreed upon between the parties prescribes its own conditions on the contractual relationship

Question 7

What is the nature of the Partnership Act 1892 (NSW)?

Answer 7

It is a state-based Act

Question 8

What are the THREE types of partnerships?

Answer 8

General Partnership, Limited Liability Partnership and Incorporated Limited Liability Partnership.

Question 9

What does a General Partnership involve?

Answer 9

• The parties are bound by the Partnership Act 1892 (NSW)
• All parties are liable for all debts
• All parties are responsible for managing day to day affairs

Question 10

What does a Limited Liability Partnership involve?

Answer 10

• There does not have to be a written agreement (it is advisable however)
• Limited Liability is defined by what is stated in the register with the Department of Fair Trading
• The partnership is not a separate legal entity
• One or more of the partners can have limited liability
• The company must be registered and the registration fee paid

Question 11

What are the TWO types of limited liability partnerships?

Answer 11

• Active General Partners (they run the business)

* Silent Partners (they contribute capital and have limited liability)

Question 12

What does an incorporated limited partnership involve?

Answer 12

• Usually in companies that require venture capital
• Register with the Department of Fair Trading
• Primarily used for venture capital investment

Question 13

What are the FOUR types of incorporated limited partnership?

Answer 13

1. Venture Capital Limited Partnership
2. Early Stage Venture Capital Limited Partnership
3. Australian Venture Capital Fund of Funds
4. Venture Capital Management Partnership

Question 14

What is the statutory provisions which outlines what a partnership is?

Answer 14

s 1 Partnership Act 1892 (NSW)

- A codification of common law principles

Question 15

What are the FOUR key elements for a partnership?

Answer 15

1. An existing relationship between persons
2. A relationship with a view to profit
3. A fiduciary relationship between partners
4. The balanced authority of partners

Question 16

What is the meaning of an existing relationship? What is the key legal case which concerned this element?

Answer 16

That there is an existing relationship between the persons involved in the partnership. It is assumed that there is equal participation and profit/losses for partners unless stated otherwise in their agreement.

The key legal case is Cribb v Korn (1911) 12 CLR 205; R v Willis; Exparte Martin (1879) VLR 149

Question 17

What is the meaning of a view to profit? What is the key legal case which concerned this element?

Answer 17

Ensures that organisations such as NFP (Not for Profits) are not considered partnerships. A view to profit is the expectation that the partnership will yield profitable outcomes for the partners.

The key legal case is Stubbs v Lakos (1994) IR110

Question 18

What is the meaning of a fiduciary relationship between partners? What is the key legal case which concerned this element?

Answer 18

The expectation of a duty of care between the partners. It imposes higher duties on the partners, based on trust and confidence. It also includes the duty of loyalty.

The key legal case is Allcard v Skinner (1887) 36 Ch D 145

Question 19

What is the meaning of the balance authority/authority of the partners? What is the key legal case which concerned this element?

Answer 19

Based upon agency principles, this is the recognition that each partner is both the principal and agent. Each partner may make decisions which are binding on the partnership.

The key legal case is Mercantile Credit v Garrod [1962] 3 ALL ER 1103.

Question 20

What are the TWO types of legal authority for a binding partnership?

Answer 20

Actual authority (both implied or express)

Apparent authority (Ostensible)

Question 21

What are the elements of actual authority?

Answer 21

• It can be expressed in the partnership agreement

* It can be implied by practice, conduct or the norm of an industry

Question 22

What are the elements of apparent authority?

Answer 22

• Where a prinicipal (a partner) leads a third party to believe that a non-agent is an agent (a partner)
• Actual authority does not exist

Question 23

What are the further elements of apparent authority?

Answer 23

• A representation is made that a person is a partner
• Credit is given by the third party to the firm (business), on the basis that anyone has held themselves out to be a partner (s 14 Partnership Act)
• The creditor relies on the representation made in order to give credit