Copyright 2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning. Copyright

Copyright © 2000 McGraw-Hill Australia

Copyright 2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning.

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Copyright 2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning.

Partnership and joint venture law

Chapter 19


Copyright 2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning. 19-3

Partnership

• A partnership is the carrying on of a business in common, with a view of making a profit.



Definitions

• Carrying on a business– continuity or repetition of action to be

carried on in the future

• In common– acting on behalf of each other

• View to a profit– distribution of profits results



Tests for determining the existence of a partnership

• Common Law Rules

- Intention

- Agency

- Sharing of profits and losses• Statutory Rules

- Joint ownership of property

- Sharing of gross returns

- Receiving a share of the profits



Partnership agreement

• Can be verbal, written or by conduct.

• A written partnership agreement is desirable as disputes are easier to resolve.

• Overrides the provisions of the relevant Partnership Act.



Contents of a standard Partnership Agreement• Names and addresses of partners• Name of firm• Place or places from which business will operate• Duration of the partnership• Capital contribution of each partner• Interest of each partner• Share ratio of profits and losses• Whether salaries will be paid to partners • Management duties of each partner• Details of keeping accounts• Limitations in the authority of partners• Appointment of bankers• Cheque signing• Retirement of partners• Admittance of partners• Dissolution of partners• Setting up competing business• Resolving disputes• Valuing of shares for retiring/deceased partners



Limitations for partners

• Capacity

Minors - not liable for partnership debts

Lunatics - limited if lunacy known

Bankrupts - must disclose bankruptcy



Relationship between partners

Partners are in a Fiduciary Relationship:

• Partners must render true accounts.

• Partners must advise full information on all matters affecting the partnership.

• Partners must account for private profits made without consent of other parties.

• Partners cannot carry on a business of the same nature in competition with the partnership, without the consent of the other partners.

• Partners may assign their interest in the partnership to another person.



Relationship between partners

Rules regarding the relationship between partners if no Ppartnership

Agreement exists:

• All partners are entitled to share equally in capital of the business.

• All partners are entitled to share equally in profits (and losses) of the business.

• Partners are entitled to be indemnified by the firm in respect of payments made and liabilities incurred.

• A partner who makes an advance or payment beyond their capital contribution is entitled to interest.

• A partner is not entitled to interest on capital subscribed until profits have been ascertained.

• Every partner may take part in the management of the firm.



Relationship between partners (continued)

• No partner will be entitled to remuneration for working in the partnership business.

• No person will be introduced as a partner without the consent of all other partners.

• Differences regarding ordinary matters related to the business of the partnership can be decided by a majority of partners.

• No change can be made to the nature of the partnership business unless all partners consent.

• The partnership books are to be kept at the place of business of the partnership.

• Partners cannot be expelled from the partnership.



Relationship of partners to third parties

Partners will be bound by each other’s actions on the basis of

an agency relationship, involving actual and apparent

authority, where:• transaction is within the scope of the business• transaction has been affected in the usual way• the third party involved in the transaction must either:

- know or believe the partner is acting as a partner, or

- be unaware of any lack of authority to act (includes non- partner who is believed to be a partner).



Actual and apparent authority

Actual - Authority to do acts specified in

Partnership Act or Partnership

Agreement.

Apparent (implied) - Authority that the

partner appears to have to third

parties.

E.g. - selling goods and chattels of

the firm

- purchasing on behalf of the

firm



Liability of Partners• Contracts - Each partner is jointly liable.• In tort - Each partner is liable jointly and severally.• Criminal wrongs - Each partner is liable jointly and

severally where there has been a breach of a statute that does not require intent as an element.

• In bankruptcy - If a partner is bankrupt, partnership may be dissolved.

• As trustees - No liability for the actions of other partners acting as trustees independent of the partnership.

• Holding out as partner - Liable as if partner of partnership.

• Outgoing partner - Continues to be liable for debts of partnership incurred before retirement.



Liability

Joint liability

The partners must be sued jointly

and not individually.

Joint and several liability:

Every partner is liable jointly and

individually.



Partnership property

Includes all property brought into the

partnership, or which is afterwards

acquired on account of the partnership.



Dissolution of partnership

By action of the partners• At expiry of time• By giving notice• By death of a partner• By insolvency of a partner• Where partnership property is charged



Dissolution of PartnershipBy court action when• Partner found to be of unsound mind

• Partner becomes permanently incapable of performing his/her part of the partnership contract

• Partner is guilty of conduct the court regards as calculated to prejudicially affect the carrying on of the business

• Partner persistently breaches the partnership agreement

• Partnership business can only be carried on at a loss

• Other circumstances that are just and equitable grounds for dissolving the partnership



DissolutionNotice of dissolution• Personal notice to persons who have had dealings with the firm• Notification in government gazette• Stationery altered• Registered business names adjusted at Corporate Affairs

Commission

Distribution of Assets• Loans from partners • Creditors satisfied• Property on basis of contributions of each party• Debts and liabilities satisfied• Surplus assets divided in proportion, reflecting profit sharing ratio



Joint ventures

• An association of persons for the purposes of a particular trading, commercial, mining or other financial undertaking or endeavour, with a view to mutual profit.

E.g. Mining ventures

Property development

Entertainment agreements

Share farming agreements



Comparison of joint venture and partnership

JOINT VENTURE PARTNERSHIP One-off enterprise Continual business activity Profits paid separately Profits paid to partnership Share physical output ofventure

Share profits of partnership

Liable severally for debtsof joint venture

As discussed

Manager not used tooversee

Manager may be used



Advantages of a joint venture

Participants are not liable for actions of other joint venturers

receive income separately

are able to compete with each other.

Documents

Copyright 2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher. Slides prepared by Kay Fanning. Copyright