Week 7 - partnership law ch10 Flashcards
define partnership
Partnership is the relation which exists between persons carrying on a business in common with a view of profit and includes an incorporated limited partnership.
The factors to be considered in determining the existence of a partnership are:
The intention of the parties; and
• How the net profits and losses are shared.
Explain the formation of partnerships
is a created agreement that can be made orally, written, under seal or inferred from a course of adopted dealings.
number + name:
maximum number of people who may form a partnership is 20 - except where partnerships are formed to carry on certain professional callings
firms name:
the collective name for a partnership is a ‘firm’
name of firm must be registered with ASIC
explain implied agreement terms
Subject to any variation made by agreement, the following determine the rights, duties
and interests of partners:
- all partners share equally in profits and losses;
- partners are entitled to be indemnified for expenditure made within the firms ordinary business;
- partners making payments on behalf of the partnership beyond the amount of capital they have agreed to subscribe are entitled to interest at 7% per annum in NSW;
- a partner is not, before the ascertainment of profits, entitled to interest on subscribed capital;
- every partner may take part in management;
- no partner is entitled to remuneration for acting in partnership business.
- no person may become a partner without consent of all partners;
- majority rules in the event of a dispute; and
- partnership books and records are to be kept at the principal place of business.
explain partnership property
Partnership property should be clearly defined but generally includes:
• property originally brought into the partnership;
• that which is acquired with partnership funds (unless contrary intention
indicated); and
• business goodwill.
explain liabilities of partners
Each partner is liable jointly with all other partners for firm debts (s 9, Partnership Act (NSW)).
A creditor can choose to sue one or all, but can only bring one action.
A person is not liable as an incoming partner for debts incurred prior (s 17).
A partner who retires may still be liable for debts incurred while a partner (s 17).
Retirement should be advertised otherwise there may be doubt as to who is liable for partnership debts: see Tower Cabinet Co Ltd v Ingram [1949] 2 KB 397.
A person who represents, or holds himself out as being a partner may be stopped from denying he is a partner (s 14).
Partners are liable jointly and severally for the wrongful act or omission of any partner acting in the ordinary course of the firm’s business, or with the authority of their co- partners (ss 14 and 16).
Conversely, co-partners will not be liable if it can be shown they are acting outside the firm’s business:
explain ‘holding out as partner’
A person who represents, or knowingly allows themselves to be represented as partner is liable as a partner to anyone who has on the faith of any such representation
explain dissolution of partnership
operation of law (such as by being contrary to law, for e.g. shooting kangaroos above specific quotas); - makes it unlawful for the businesses to carry on
- at expiration of any fixed term;
- at completion of a stated objective;
- at the giving of notice by a partner;
- death, bankruptcy or insolvency of a partner;
- at creation of a charge over a partner’s property; or
- by the court.
explain limited partnerships
One general partner who manages the firm will have unlimited liability. Limited partners will have limited liability but cannot take part in management. These partnerships are required to be registered
explain liability of partners
Each partner is liable jointly with all other partners for firm debts (s 9, Partnership Act (NSW)).
A creditor can choose to sue one or all, but can only bring one action.
A person is not liable as an incoming partner for debts incurred prior (s 17).
A partner who retires may still be liable for debts incurred while a partner (s 17).
Retirement should be advertised otherwise there may be doubt as to who is liable for partnership debts: see Tower Cabinet Co Ltd v Ingram [1949] 2 KB 397.
A person who represents, or holds himself out as being a partner may be stopped from denying he is a partner (s 14).
Partners are liable jointly and severally for the wrongful act or omission of any partner acting in the ordinary course of the firm’s business, or with the authority of their co- partners (ss 14 and 16). A number of cases reflect this principle. See Polkinghorne v Holland & Whitington (1934) 51 CLR 143; Mercantile Credit Co Ltd v Garrod [1962] 3 ALL ER 1103; and Lloyd v Grace, Smith & Co [1912] AC 716.
Conversely, co-partners will not be liable if it can be shown they are acting outside the firm’s business: see National Commercial Banking Corp of Australia v Batty (1986) 160 CLR 251 and Goldberg v Jenkins (1889) 15 VLR 36.
Bob, a property owner, gives Janine the right to use his premises to run a
business. Janine pays Bob a weekly amount from the profits made in return for the right to use the premises. Bob is not involved in any of the activities related to running the business and he has no right of entry to the premises while Janine is conducting her business. Is Bob a partner of Janine? Discuss.
See the Partnership Act. Sharing of gross returns, whether the persons sharing such returns have or have not a joint or common right or interest in any property from which the returns are derived, does not of itself create a partnership.
Cribb v Korn (1911) - no partnership and the sharing of gross returns was not enough to establish a partnership. See 10.50
- Linda and Mary operate a hair salon as partners. To set up the business, Linda contributed 70% of the money. All ongoing costs were contributed to equally. In their written partnership agreement, it is stated that all profits, debts and liabilities are to be distributed equally between the partners. After operating the business for several years, Linda terminates the partnership. Linda claims that she is entitled to 70% of the profits from the sale of the business. Mary, however, argues that capital profits are to be shared equally. Discuss.
The Act provides for equality of profits notwithstanding that capital has been contributed unequally. This recognises the fact that partners may contribute a personal value to the firm apart from the monetary value of any capital paid in. See s 28(1) of the Partnership Act 1958 (Vic). See 10.110.
Greg, Allan and George are partners in a small law firm specialising in family and property law, and share a large city office where they operate their business. Their partnership agreement states that all profits, debts and liabilities of the firm are to be shared equally amongst partners. Greg sometimes conducts client meetings from his home office in the evenings and on weekends. He also offers these clients additional legal services such as wills and estate planning. He does not share the profits from these transactions with his business partners. Is Greg required to account for these profits under the Partnership Act?
The partners are bound to exercise the utmost good faith in their dealings with one another. This obligation continues throughout the term of the partnership. It does not conclude with dissolution but continues until the final settlement of accounts on winding up.
Partnership Act 1958 (Vic), s 34: If a partner, without the consent of the other partners, carries on any business of the same nature as and competing with that of the firm he must account for and pay over to the firm all profits made by him in
that business. Greg is competing with the partnership by providing legal advice which is basically of the same nature.
Partnership Act 1958 (Vic), s 32: Partners are to render true accounts and full information of all things affecting the partnership to any partner or his legal representative. In the event that a partner does not reveal the accounts to the other partner or partners a court order may be sought.
Partnership Act 1958 (Vic), s 33: Every partner must account to the firm for any benefit derived by him without the consent of the other partners from any transaction concerning the partnership or from any use by him of the partnership property name or business connection
See Chan v Zacharia (1984). See 10.130–10.140.
Jamie and Greg are partners in a firm called Copythat, that leases photocopiers to commercial businesses. Their partnership agreement states that they are prohibited from selling toner to clients other than by arrangement with David’s business, which sells toner. An important client asks Jamie to supply toner, which Jamie provides from a private supplier in India, and does not inform Greg or David. The toner is of poor quality and the firm sues Copythat for damages, arguing that it was in the scope of their business to supply toner. Greg argues that as a partner he is not jointly liable since James acted contrary to their agreement. Discuss the liability of partners to third parties.
Liability of partners to third parties - Partnership Act 1958 (Vic) s 9.
The act or transaction entered into must be within the scope of the kind of business carried on by the firm - Polkinghorne v Holland. The court will look at the transaction from the perspective of the plaintiff – from the plaintiff’s point of view the sale was within the usual course of business. Notwithstanding that a partner has entered into a transaction which is within the scope of the kind of business carried on by the partnership, the third party will be put “on notice” that the partner may lack authority if the transaction is carried out in an unusual way. Mercantile Credit Co Ltd v Garrod.
The partner, without actual authority, enters a contract that is within the scope of the kind of business carried on by the firm and it is entered in the usual way. Here, it is likely to be binding on the partners since the third party likely did not knows of the lack of authority to supply toner from a supplier other than David. Construction Engineering Pty Ltd v Hexyl Pty Ltd. See 10.200.
