Define a partnership
A Partnership is a legal relationship arising from an agreement between two or more persons, each to contribute to an enterprise, with the object of making profits and dividing such profits. (Pezzutto)
Factors of a partnership
- This form of business undertaking is not a separate legal entity or persona separate from its members. (Ex Parte Buttner Brothers)
- The partners own the partnership property jointly as co-owners.
- Partners are jointly and severally liable for the debts of the partnership.
- A partnership can only be created by a contract between the parties, intending to make a profit and share such profit.
- No statutory formalities regulate the formation of a partnership.
- The main object must be to make a profit
What did the court in Strydom state about the basic common principles of partnership?
In Strydom, the court analysed that the basic common law principle is that a partnership is not a legal entity or persona separate from its members. This means that the rights of a partnership are vested in, and the liabilities are binding on, the individual partners
What are the four essentials of a partnership agreement?
Essentials of a partnership agreement: (Pothier’s four essentials of partnership)
* Contribution (money, labour or skill)
* Joint benefit of the partners
* Profit objective
* Legitimate contract
What was held in Pezzutto about the contribution to partnerships?
In Pezzutto, it was held that the contribution to be made by each partner need not be of the same character, quantity or value.
When will a prima facie partnership be established?
An agreement which contains Pothier’s four essentials of partnership will prima facie establish the existence of a partnership, but this is not conclusive, and all the elements of the agreement must be considered.
Can a partnership be silent, tacit or verbal?
Pezzutto holds that a partnership can be in written, verbal or non-verbal form. The contract may be in writing, oral or implied by conduct (Adcock v Adcock). Fink v Fink, the court found that a partnership contract was implied from the conduct of the parties.
When do you determine if a partnership creates an agreement?
In Pezzutto v Dreyer the court reiterated that, for a partnership to come about, there must be an agreement to that effect between the contracting parties. In determining whether or not an agreement creates a partnership, a court will have regard:
* the substance of the agreement,
* the circumstances in which it was made and
* The subsequent conduct of the parties.
* The fact that parties regard themselves as partners
What does section 330(3) of the LPA state?
Section 330(3) of the Legal Practice Act, no person may in expectation of any fee, commission, gain or reward, directly or indirectly, perform any act or render any service which in terms of any other law may only be done by an advocate, attorney, conveyancer or notary unless that person is an advocate, attorney, conveyancer or notary, as the case may be.
What happens when one partner contracts on behalf of the partnership?
When a partner contracts on behalf of the partnership, that partner acts as an agent and binds all remaining partners, provided that they act within the scope of their authority. (Goodrickes)
What is the naturalia of the partnership agreement?
The naturalia of the partnership agreement: (when not explicitly stated)
* The portion in which partners share the profits is in accordance with the percentage of their contribution, and if this is unquantifiable, it is equal
* Extraordinary and silent partners do not share in loss
* Authority to represent the partnership is equal, unless agreed otherwise
* Co-ownership of the partnership fund, jointly and severally liable
* Assets of the partnership can only be used for the business of the partnership.
Types of partnership agreements?
Types of partnerships: (Adcock)
* Ordinary partnerships
* Universal partnerships
* Extraordinary partnerships.
What is an ordinary partnership?
In Ordinary partnerships, the partners are jointly and severally liable for the debts and liabilities of the partnership, while in extraordinary partnerships, a partnership agreement can provide that some of the partners will not share the losses incurred by the partnership.
What is a personal liability compnay
A personal liability company recognised under section 8(2)(c) of the CA, is a form of incorporated partnership, as all directors are jointly and severally liable for debts incurred by the company during their tenure as directors.
What are the two types of universal partnerships?
Universal partnerships consist of two types: (Panelat)
* A universal (or general) partnership of all property (universorum bonorum)
* A universal partnership of all profits.
What is a universal partnership in relation to all property?
A universal partnership of all property is a partnership when the parties agree to contribute all their property and possessions, which they own at the commencement of the partnership, as well as possessions they may acquire in the future from whatever source, irrespective of
whether such property is acquired from commercial undertakings or otherwise.
What is a universal partnership in profit?
A universal partnership of all profits agrees to put in all profits that they may acquire from every commercial or business activity or undertaking during the subsistence of the partnership.
What are extraordinary partnerships characteristics of arrangements? (Eaton)
Extraordinary partnerships characteristics of arrangements: (Eaton)
* Anonymous partnership - undisclosed name to the public, not liable to third parties for the debts of the partnership but liable to partners to extend agreed
* Partnership en commandite - undisclosed partner makes a contribution in the form of a fixed sum of money on condition that they receive a certain share of the profits, but only liable to the extent of the fixed contribution
What is an anonmous partnership?
The anonymous partner may not participate actively in the business of the partnership. The extraordinary partners have legal obligations only towards the ordinary partners and not
towards the creditors of the partnership.
How are the two types of extraordianry partnership happen?
There is a consensus that the two types of extraordinary partnership are similar:
* The partner is undisclosed, and the partners are not held out to the public as partners.
* The partner does not participate in any area of the business, such as decision-making
* The partner is liable only to co-partners, and not to creditors of the partnership.
* A partner may not participate actively in the business of the partnership, and may not, while the partnership is still in existence, claim possession of the assets of the business.
When does an anonymous partner not happen?
It was held in Eaton and Louw that a person is not an anonymous partner merely because a creditor of the partnership happened not to know that he was a partner in the business.
What are most common fiduciary duties in a partnership agreement are?
The most common fiduciary duties in a partnership agreement are:
* The duty of good faith clearly precludes a partner from competing with the firm or partnership. (Purdon & De Jager)
* Duty to promote the interest of the partnership
* A partner must avoid a conflict between his own interests and the interests of the partnership.
* A partner is under a duty to disclose to his copartners all the information affecting the partnership.
* A partner has a duty to exercise reasonable care in managing the partnership’s affairs.
* A right to look at the finances of the business
* A right to represent the business externally (Goodrickes)
When is a third party liable to a partner?
A partner is liable to a third party when an act is in:
* The scope and course of the partnership
* If a reaonable personable person would state that it was bought for partnership
What is a partner obliged to account for in a partnership?
As a general rule, a partner is obliged to account for, and deliver to the partnership, whatever he has obtained as a partner on behalf of the partnership, or within the scope of the partnership business, or in continuance of partnership transactions, or was his duty to acquire, or was intimately connected with the partnership
