Luật học - Chapter 19: Partnership and joint venture law

This is the prescribed textbook for your course.Available NOW at your campus bookstore!Partnership and joint venture lawChapter 19Learning objectivesAt the end of this chapter you should understand:the definition of the term ‘partnership’the tests used to decide if partnership existshow a partnership is createdthe matters that should be included in a partnership agreementwho has capacity to act as a partnerthe fiduciary nature of a partnership and the obligations it imposes on partnersthe power of partners to enter into contracts and when those contracts will bind the partnershipLearning objectives (cont.)the liability of partners in contract and tort and the difference between joint liability and joint and several liabilitythe significance of determining whether a piece of property is partnership propertythe ways in which a partnership can be dissolved by the action of the partners and the courtthe characteristics and possible functions of a limited liability partnershipthe advantages and disadvantages of operating a business as a partnershipthe definition of the term ‘joint venture’ and how to distinguish it from ‘partnership’.IntroductionPartnership:The carrying on of a business in common, with a view to making a profit.DefinitionsCarrying on a business:Continuity or repetition of action to be carried on in the futureIn common:Acting on behalf of each otherView to a profit:Distribution of profits resultsTests for determining the existence of a partnershipCommon law rules:IntentionAgencySharing of profits and lossesStatutory rules:Joint ownership of propertySharing of gross returnsReceiving a share of the profitsCreation of partnership Can be verbal, written or by conduct.Written partnership agreement is desirable as disputes are easier to resolve.Overrides the provisions of the relevant Partnership Act.Contents of a standard partnership agreementNames and addresses of partners and name of firmPlace or places from which business will operateDuration of partnershipCapital contribution and interest of each partnerShare of profits and lossesSalaries paid to partners Management duties of each partnerLimitations in authority of partnersDetails of keeping accountsAppointment of bankersCheque signingRetirement of partnersValuing of shares for retiring/deceased partnersAdmittance of new partnersDissolution of partnershipCompeting business setupResolving disputesLimits on the size of a partnershipNumber of parties to a partnership generally must be between 2 and 20.For actuaries, medical practitioners and share brokers or stockbrokers upper limit is 50.For architects, pharmaceutical chemists or veterinary surgeons upper limit is 100.For legal practitioners upper limit is 400.For accountants upper limit is 1000.Who can be a partner?Capacity:Minors are not liable for partnership debts.Mentally incapacitated persons’ liability is limited if their incapacity is known.Bankrupts must disclose bankruptcy.Relationship between partnersFiduciary 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 (cont.)Rules regarding the relationship between partners if no partnership 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.Relationship between partners (cont.)Every partner may take part in the management of the firm.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 partiesPartners will be bound by each other’s actions on the basis of an agency relationship, involving actual and apparent authority, where:the transaction is within the scope of the businessthe transaction has been effected in the usual waythe third party involved in the transaction either:knows or believes the partner is acting as a partneris unaware of any lack of authority to act (includes non-partner who is believed to be a partner).Actual and apparent authorityActual: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 firmpurchasing on behalf of the firm.Liability of partnersContracts—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, the 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.LiabilityJoint liability:The partners must be sued jointly and not individually. Joint and several liability:Every partner is liable jointly and individually.Partnership propertyIncludes all property brought into the partnership, or which is afterwards acquired on account of the partnership.Dissolution of partnershipBy action of the partners:At expiry of timeBy giving noticeBy death of a partnerBy insolvency of a partnerWhere partnership property is chargedDissolution of partnership (cont.)By court action when:Partner found to be of unsound mindPartner becomes permanently incapable of performing his or her part of the contractPartner is found guilty of conduct calculated to prejudicially affect the carrying on of the businessPartner persistently breaches partnership agreementPartnership business can only be carried on at lossThere are other just and equitable grounds for dissolving the partnership.Notice of dissolution of partnershipPersonal notice to persons who have had dealings with the firmNotification in government GazetteStationery alteredRegistered business names adjusted at Corporate Affairs CommissionDistribution of assets at dissolution of partnershipLoans from partnersCreditors satisfiedProperty on basis of contributions of each partyDebts and liabilities satisfiedSurplus assets divided in proportion, reflecting profit-sharing ratioLimited liability partnershipsLegislation in all states permits the creation of limited liability partnerships.It differs from a conventional partnership in that it allows a partner’s liability to be limited to the amount of their capital contribution.Creates two types of partners:General partnerLimited partnerJoint venturesAn 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 venturesProperty developmentEntertainment agreementsShare-farming agreementsComparison of joint ventures and partnershipsAdvantages of a joint ventureParticipants:Not liable for actions of other joint venturersReceive income separatelyAble to compete with each other