Partnership Flashcards
Nature of Partnership
A creature of common law
A relation that subsists between persons carrying on a business in common with a view to profit [PA-S2]
A multilateral agency - each partner is the agent of all the other partners and consequently the partnership [PA-S6]
Based on trust & fiduciary duty
- Meinhard v Salmon: “not honesty alone, but the punctilio of an honor the most sensitive”
Absent any agreement, the statute governs the relationship [PA-S24]
- Arrangements between partners can be varied by agreement
- arrangements between the partnership and the outside world mostly CANNOT be varied by partnership contract UNLESS limits on authority is made clear to outside world
Formation of Partnership
PA-S3 sets out limits on the existence of partnership
- Co-owners are not partners: LePage v Kamex
- Share profits and losses: Microsoft and Sendo; Volzke v Weslock
- Joint ventures: typically heavily contracted arrangement - in cases of ambiguity, fiduciary duties of partnership are used to interpret the K
LePage v Kamex
Facts: L claimed commission on the sale of a building; L entered into listing agreement with an owner of the building; K and others are co-owners of the building
Court: No partnership
- Co-owners are not partners
- Policy: inconsistent with free alienation and development of property; one could be a co-owner and an employee of another co-owner
- no intention to carry on a business
Legal status of partnership
The partnership is not a separate legal entity.
- But can sue and be sued in the name of the partnership; Can own property in the name of the partnership - but it’s really just a shorthand for all the partners in the firm, “simply provides a convenient way to commence an action”
- Thorne v NBWC
Unlimited liability
Flow-through taxation: The partnership itself is not taxed, tax at personal tax level.
Re Thorne v NBWC
Facts: T is a partner with R; T was injured, and applied to Workers’ compensation as an employee of the partnership.
Court: Partnership is not a legal entity; Partners are not employees of the firm
Default Provisions of PA-S24
All terms below can be varied in a partnership agreement - express or implied
s24(1) - All partners share equally in profits and losses
s24(2) - A partner shall be indemnified by he firm for payment made and personal liability incurred in conducting the business and to preserving property of the firm
s24(3) - A partner is entitled to interest at 5% for actual payment or advance beyond subscribed cap
s24(4) - A partner is not entitled to interest on subscribed cap before profits
s24(5) - Partners have equal management rights
s24(6) - Partners are not entitled to remuneration for acting in the partnership’s business - draw from cap acct, p&l, not wages
s24(7) - No person may be introduced as a partner without the consent of all existing partners.
s24(8) - Decisions on ordinary business are by majority; Decisions on the nature of the partnership require unanimous consent
s24(9) - The partnership books are kept at place of business, and every partner may have access to them.
Default Provisions of PA-S32, 33
Resolution depends on the purpose of forming the partnership and is subject to any agreement among partners.
s32(a) - for a fixed term: dissolve when the term is over
s32(b) - for a single adventure or undertaking: dissolve when it’s completed
s32(c) - at will: can be dissolved by any partner giving notice
s33 - dissolved by death or insolvency of a partner, subject to other agreements
Default Provisions of PA-S21
Partnership property is property brought into the partnership, acquired on account of the firm, or for the purposes of and in the course of the partnership business.
- If held in the name of an individual partner, it is held in trust for the partnership
Default Provision of PA-S25
No majority of the partners can expel any partner unless a power to do so has been conferred by express agreement between the partners.
Fiduciary duties
Partners are agents for each other, thus have fiduciary duties to each other - confirmed in Rochwerg v Trister [2002 ONCA]
- McKnight v Hutchinson
Default Provisions of PA-S31
Rights of assignee of share in partnership
- An assignment by a partner of the partner’s share does not make the assignee a partner but for the sharing of profits and assets when partnership dissolves
Limited Partnership
General partners + limited partners
A creature of statutes - must be registered in the jurisdiction and filed certificate of declaration - add Limited partnership to business name [s44.3]
Not a legally recognized separate entity
Allow investors who are attracted to the benefit of partnership without incurring unlimited liability.
Same tax advantage as partnership
LP - Structure
General partner: management of the business - unlimited personal liability - can be a corp
Limited partner: contribute capital - have the limited liability protection so long as they do not participate in the management or control of the business - may be vicariously liable for acts of agents/employee in carrying out business
- Haughton Graphic; Nordile Holdings
Haughton Graphic v Zivot [1986 ON HC]
Facts: Z is a ltd partner; The general partner is LS, a corp incorporated by Z; held himself out as president, had control of the magazine, made management decisions and signed all cheques; when firm went bankrupt, H was owed money; H wanted to collect from Z personally.
Court: Z is personally liable - If a limited partner takes control of the business, he is liable as a general partner to the full extent of his business. The belief and reliance of the creditor is not an issue, even if creditor knew about the structure of the magazine.
Nordile Holdings v Breckenridge (1992 BCCA]
Facts: N sold land to A LP. A went default. Arbutus is the GP for A LP, and B and R are LP in A LP and director in Arbutus. N wanted to hold B and R liable.
Court: Directors of the GP corp are not personally liable. B and R participated in the management as directors, did so “solely in their capacities as directors and officers of the GP Arbutus”. Acting solely in one capacity negates acting in other capacities.
