Partnerships Flashcards
partnerships
Law deems any 2 or more persons who are business for profit are in partnership whether they have intended it or not.
It does not require a formal or even a deliberate act of formation in order to come about.
Legal relationship that exists between partners.
advantages of partnerships
- few formalities - contractual relationship between two or more people
- very flexible - partners are free to contract as they please, each partner is agent for other
- no registration is required - can choose any business name within reason)
relevant legislation for partnerships
Partnership Act 1908 - standard set of terms in absence of an agreement.
Parties own agreements
Case law - contract law and fiduciary
disadvantages of partnership
refer to as firm
- assets are owned jointly and partners are jointly and severally liable for debts of partnership (s13)
- umlimited liability
- taxed at individual partner’s rate of earnings
section 5 partnership act 1908
Section 5 - rules for determining a partnership and helps in definition a little more by excluding certain arrangements.
Essentially these things don’t create a partnership
- joint tenancy, tenancy in common, joint property or part ownership
- sharing of gross returns
Proves partnership if
- receipt by a person or a share of the profits of a business is prima facie (correct) evidence that he is a partner in then business but receipt of such a share does not make him a partner
WHICH INCLUDES
- receipt of a person of debt or other liquidated amount out of accusing profits
- contract for remuneration of servant or agent of person for a share of profit
- person receiving by way of annuity a portion of profits
- advance of money by way of loan
- receive annuity or otherwise in consideration of sale of goodwill
Reasons for partnerships
- expansion of original business
- family expansion
- combination of ‘capital’ and ‘skill’ (investor and inventor)
- complementary skills
Examples include lawyers, accountants, doctors, etc
National Insurance Co of NZ v Bray (1934)
Facts: written agreement to purchase a building in Auckland CBD by syndicate of individuals. One to buy in own name and others buy respective share when asked to. No one paid so asked Court to say if partnership or if members of syndicate co-owned building.
Judgement: Partnership - implied.
Significance: Existence of Partnerships
Welch v Jess (1976)
Facts: Friends had agreed to take a fishing trip together starting with a fishing competition. Divide the prize. The defendant had given them all an pop to get out of agreement. He won and refused to share
Judgement: No partnership as trip is not business. A contract (so remedy under Contractual Remedies Act)
Cox v Coulson (1916)
Facts: Coulson was manager of theatre and agreed to provide the theatre and pay for lighting and playbills after agreeing with Mr Mill. Cox got injured and wanted to make Coulson liable as Mill’s partner.
Judgement: Sharing of gross returns is not a partnership.
Partnership agreement
- intention to form a partnership and hence there is an agreement
- document - actual document itself (written partnership agreement). Partnership Deed.
Rules around name
Usually surname of the partners. —- and Co.
Need correct name when recording partnership name. Look for possibility of trading trust but never Ltd.
Formalities and application of Partnership Act 1908
No legal requirement for formality. But, then Partnership Act 1908 S27 apply.
Rules are not mandatory so the partnership agreement can reflect what parties want. The statutory rules may not be appropriate in every instance.
Relationships between partners
Governed by contract.
Key areas in partnership agreement
- name of firm
- commencement and duration of partnership - start date is when one partner can bind others and bind all to unlimited and joint and several liability for debts and obligations of firm.
- provision for partnership capital and property
Section 27
Rules as to interests and duties of partners. It is not mandatory.
Interests of partners is determined subject to any agreement by the following rules
- all partners share equally
- firm must indemnify every partner in respect of payments made and personal liabilities incurred by him (naturally in business or done to preserve business or property of firm)
- partner making payment or advance beyond capital - entitled to interest at 5%
- partner is not entitled to interest before profit
- partner has to take part in management
- no partner gets remuneration for acting in partnership
- no partner can be introduced without consent of existing partners (can’t bring in just because you want to)
- any difference in matters is decided by majority of partners but not change can be made without consent of all
- partnership books are to be kept at place of business of partnership and every partner when he thinks fit have access to and inspect and copy any of them
