Partnerships Flashcards
Definition of a Partnership
A partnership is a relationship between two or more partners who are carrying a business with a view of making a profit. The partners are responsible for the running of the business involving the day to day operations and also share any profits between themselves. All partners are personally responsible for the debts and obligations of the business as it is not a separate legal entity with the exception of LLP’s.
Main features of a Partnership
- Contractual relationship (relationship of utmost good faith)
- Separate Legal Persona (in Scotland) ( can enter contracts, raise legal action, be sued by third party in legal dispute, own property, commit delicts)
- At least two individuals, no maximum
- Main purpose is to make a profit
- Members of partnership contribute money, time, skills
Creation of a Partnership
The creation of a partnership business does not involve any legal requirements. For example, the business does not need to be registered with the registrar of companies unlike public or private limited companies.
Partnerships can have 3 types of contracts
1) Expressed (written or verbal)
2) Implied by the actions/behaviour of parties/members
3) By holding out
If there is no written partnership agreement and a dispute arises then the court can use the rules contained in the Partnership Act 1890 however this only provides guidelines and partners are free to ignore them.
What does not prove the existence of a partnership
3 circumstances
- Owning property jointly or in common
Sharpe v Carswell (1910) - Sharing of gross returns
Cox v Coulson (1916) - Parties may share profits without being partners Eg employees
Owning property jointly or in common
Sharpe v Carswell (1910)
CASE: Sharpe held a small shareholding in a boat on which he suffered a serious accident and died whilst he was working. His wife sued but the claim was dependant on whether or not Sharpe was a partner in the business.
HELD: Ownership of a property does not constitute a partnership. Sharpe was not deemed to be a partner. But his widow was entitled to receive compensation under the Workmen’s Compensation Act 1906 as it was a work-related death.
Sharing of gross returns
Cox v Coulson (1916)
CASE: Mr Mill and Mr Coulson enter into an agreement regarding the provision of a theatre and scenery. Mr Coulson receives a share in gross returns only. Mr Cox a member of the audience is injured by gunfire during the performance and sues Mr Coulson as a partner.
HELD: Mr Coulson is not a partner as sharing gross returns itself doesn’t constitute a partnership.
Fiduciary duties of a partner (relationship of trust)
- Duty to disclose (S.28) Law v Law 1905
- Duty to account (S.29) Pathirana v Pathirana 1967
- Duty not to compete (S.30) Glassington v Thwaites 1823
To Disclose S.28
Law V Law (1905)
CASE: One partner accepted an offer from another to buy his shares of the firm. Later discovered certain partnership assets had not been disclosed to him and decided to set aside the contract.
HELD: A partner could avoid an agreement where his shares of the business are sold to another partner when the other partner fails to disclose information affecting the value of the partnership to the partner selling his shares.
Duty to disclose (S.28)
- keep proper accounts
* inform fellow partners about matters which may affect the firm
To Account S.29
Pathirana v Pathirana (1967)
CASE: Partner informed another partner by a notice to end the partnership within three months. In the three-month period the partner serving the notice obtained a contract in business which was originally engaged into by the partnership.
HELD: The partner serving the notice was under a duty to account to the other partner the profit she made under the contract.
Duty to account (S.29)
• inform fellow partners of any profit made or benefit received as a result of his position as a partner or as result of using the firm’s property / assets, name, contacts, business connections
Not to compete S.30
Glassington v Thwaites (1823)
CASE: Member of the partnership produced a morning paper and was also involved in publishing an evening paper. Was argued that by being involved in the evening paper meant he was in competition with the partnerships business.
HELD: Partner was to account for the profit he made from publishing the evening paper.
Duty not to compete (S.30)
• profit made by competing business (without permission by his fellow partners) have to be handed over to the firm
