deck_1439442 Flashcards
How is a Partnership different from a sole proprietorship?
They are both very similar, except partnerships have more people in the business. Partners have unlimited liability but it is spread between all partners.
What are some of the benefits to a Partnership relative to sole proprietorship?
1) They allow you to bring in the expertise and skill of other people2) A method of acquiring capital (if partners are required to buy-in)
What are the elements of partnership?
1) It must carry on business2) In Common 3) With a view to a profit
What happens in Backman?
The case is about whether a business was established with a view to profit. Backman bought a partnership interest in a US apartment complex. The partnership was sold back immediately afterwards so that Backman could gain millions from a tax deduction. If a partnership does not exists then the tax deductions are wrongly claimed.
How does Backman apply the partnership elements?
1) Carrying on Business:Partnerships do not require creating new business and partnerships can be established for a single transaction.2) In CommonConsider the nature of the relationship. if the mgmt of a partnership rests with a single person then the partnership may still exist. 3) With a view to profitMust inquire into the party’s intention – NOT the motivation –. Motivation stimulate an action, while intention is an objective.
What happened in Spire Freezers?
Factually similar to Backman. Appellants acquired a partnership interest with two American corporate partners that owned two properties: a luxury condominium and a low-rent apartment complex. The condo was immediately sold back to one of the American partners, but the appellants kept and managed the apartment complex after becoming aware of its potential profitability. Because the apartment complex continued to be managed with a view to profit, the tax losses were deductible– unlike in Backman.
What do the statutory regulations say about setting up a partnership?
There ARE NO statutory provisions for setting up a partnership. Thus, courts infer the existence o a partnership under common law and the provincial Partnerships Act (section 27).
How does a court infer the existence of a partnership?
The court will look to the objective intentions of the parties as determined by: The right to share in profits, the right to share in losses, and the degree and control over the business.This is an objective test to determine subjective intent and so must be based on objective evidence (Spire Freezers). Under common law there is no requirement to make a capital contribution to be considered a partner.
What are the legal requirements for forming a Partnership?
Register your partnership under the Partnerships and Business Names Registration Act. There is an annual registration fee. If you don’t register then the courts may still infer partnership. However, the consequence are a small fine and the inability to commence actions through the partnership.
Boudreau v Pierce
Flowershop case. Illustrates the importance of a partnership agreement.The flower shop started as a sole proprietorship. The owner contributed all the start up capital and then asked his employee to beome a partner. They had a falling out and on dissolving the partnership the owner claimed that he should not have to share the capital he personally invested. The court infers a partnership and decides that there was no agreement to rebut the common law presumption of an equal share of assets on dissolution. A partnership agreement would have avoided this.
Do partners have any fiduciary duties to one another?
Yes! There are two: (1) Duty of skill and care, and (2) a duty of good faith. If these are violated then there are serious legal consequences.
Are partners liable for the actions of each other?
Yes. However, there is an exception to unlimited liability: if the person acting has no authority to act in a particular manner and the person with whom he or she is dealing knows that they don’t have that authority then you will not be liable–> Section 8 of the Partnership Act.
How is a partnership dissolved?
At common law, by a partner’s death, expulsion, breach of fiduciary duty, or bankruptcy.It can be dissolved by court order, at the will of all partners, or any triggering event specified in the partnership agreement.
How do you form a Limited Partnership?
It MUST be formed under the Limited Partnership Act. No similar concept under common law.
What happens in a LP if the General Partner dies or quits?
The partnership dissolves, even if there are limited partners. This is because the LPs have no say in the management of the business. You cannot even say in a partnership agreement that a given LP will ascend to fill the GP’s position on the GP’s death as that would create a new partnership.