BX2112 Week 1 Partnership Notes PDF

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Summary

PARTNERSHIPS –Partnership Act 1981 (QLD)Why does the character of the organisation matter? Because it determines the right and responsibilities of a business The law is largely determined by the organisational structure (including liability) Why do people enter partnerships?o Expected in some profes...

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PARTNERSHIPS – Partnership Act 1981 (QLD) Why does the character of the organisation matter? -

Because it determines the right and responsibilities of a business The law is largely determined by the organisational structure (including liability)

Why do people enter partnerships? o o

Expected in some professions Corporations have a lot of paperwork and are heavily regulated

There are also LIMITED partnerships o o

Gives the venture capitalist a limited liability to the value of their investment E.g. Shark Tank

OVERALL: -

Partnerships are less regulated and have less paperwork Much more simple than a company More flexible Small-medium businesses, family businesses

Limited partnership – places a limit on the liability of the partner who contributes pretty much all of the capital (venture capitalism). Different from the standard form of partnerships because typically one partner is the venture capitalist and their only input into the business is that money. They want most of the risk and most of the hard work done by that partner. Their liability is limited to their original contribution. (Shark tank example).

If you’re a partner is a firm (relates to section 27 and onwards), everyone is EQUALLY LIABLE FOR THE LOSS OF THE PARTNERSHIP. If the money in the partnership is not enough to pay the partnership’s losses, partners become personally liable for that loss.

Basically: 1. Shared liability and loss 2. Partners are personally liable for any leftover debt

THIS IS WHY LIMITED PARTNERSHIPS AND VENTURE CAPITALISTS EXIST -

Because there is a cap on what they can lose (just their original contribution amount)

WHAT ARE PARTNERSHIPS? S5-6

A partnership is the relation that subsists between persons carrying on a business in common with a view of profit. Therefore, to satisfy this rule, the people must be ‘carrying on a business’ which is which involves activities undertaken as a commercial enterprise in the nature of a going concern, that is, activities engaged in for the purpose of profit on a continuous and repetitive basis. The partners must also be operating ‘in common’. This requirement separates a partnership from a joint venture and means that the people are in business for and on behalf of each other. Lastly, the business must have a view of profit, and thus clearly excludes groups, such as clubs, that are formed merely for sporting, cultural, recreational or other non-profit, non-business purposes.

Partnerships have three requirements: ‘carrying on a business’ – not a charity, club etc. (Smith v Anderson) ‘In Common’ separates joint ventures from partnerships (Canny Gabriel) e.g. all the businesses/companies working together to build and market the Brisbane tunnels because they each have their own goal ‘with a view of profit’ Test – Are you in business for and on behalf of each other? (if yes, then in common) Is it a mutual agency? (everything done is for the benefit of the project)

Canny Gabriel Castle Advertising Pty Ltd & Anor v Volume Sales (Finance) Pty Ltd (1974) - 45 Canny Gabriel is the benchmark test for mutual agency -

Fourth Media management Pty Ltd had contracts with Elton John and cilla Black for public performances in Australia Volume sales agreed to finance those contracts for a one-half interest in the contracts and to perform the said contracts as a joint venture Volume Sales’ advance was described as a ‘loan to the joint venture’ Loan was repayable before profits were distributed, which were to be divided equally between the joint venturers after the advance was repaid

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All policy matters relating to the joint venture were to be agreed upon by the parties Box office proceeds were to be paid into an account in Volume Sales’ name Fourth Media then granted Canny Gabriel (advertising company) an equitable charge in its undertaking, including its right to box office receipts Who had the greater entitlement to the box office proceeds? Canny Gabriel as a secured creditor or Volume Sales as a joint venturer? If the business was just a joint venture, Volume Sales would’ve had no priority. However, if it was a partnership, it would have an equitable interest in the partnership’s assets, which having arisen prior in time to Canny Gabriel’s equitable charge, would prevail over the equitable charge. IT WAS HELD THAT merely calling a particular arrangement a joint venture, a consortium or a syndicate is not conclusive evidence that it is what it has been called. READ PAGES 45 AND 46 OF GRAW TEXT FOR REASONING

In Canny Gabriel Castle Advertising Pty Ltd & Anor v Volume Sales (Finance) Pty Ltd (1974), it was held that merely calling a particular arrangement a joint venture, a consortium or a syndicate is not conclusive evidence that it is what is has been called. Re Ruddock (1879) – Thi spos i t i onc anbec ompar e d wi t h ReRud do c k( 18 79)5VLR ( I P& M)51 . Ruddoc k,whoc ar r i e d on bus i ne s sasas ol et r ade r ,be c amei nde bt e dt oMr sBe ar ,t hegr andmot herofoneofhi se mpl oyee s . The e mpl oye ewas1 9ye ar sol d.Ruddoc ke nt e r e di nt oa na gr ee mentunde rs ea lwi t hMr sBe arwhe r e bys hewas t opur c has eaonequa r t e rs har eoft hebus i ne s s-t heul t i ma t ebe ne fitwoul dgot ot hegr a nds on. Unde rt hea gr e e me nt :

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Mr sBe a rha df ul lc ont r olo ve rt hes ha r e ,i nc l udi ng t hepowe rofdi s pos i t i on ( unt i lt he gr a nds ona t t a i ne d2 1ye ar s ,di e dbe f or ea t t a i ni ngs uc ha na geori fhedi s pl e a s e dhe ri na ny wa y) . Thepur c ha s epr i c eoft hes ha r ewast obet r e a t e da sha vi ngbe e npa i dbyt hedi s c ha r geof t hede btowi ngt oMr sBe a r . Mr sBe a rwoul dr e c e i veaonequar t e rs ha r eoft hene tpr ofit s .Howe ve ri twa se xpr e s s l y a gr e e dt ha ts hes houl dnotbel i a bl easapa r t ne rf ora nyl os s e sandt ha tRuddoc kwoul d i nde mni f yhe r . Mr sBe a r ' snamewasnott obeus e dands hewasnott obehe l douta sapa r t ne r . Mr sBe arha da c c e s st ot hebooksa ndRuddoc kwa st obe ha vea ndma na get hebus i ne s s‘ as onepar t ne rs houl ddot oa not he r ’

Atas ubs e que ntda t e ,Ruddoc kc ons ul t e dwi t hMr sBe ara st ot hedi s pos a lofa not he rquar t e r -s har ei nt he bus i ne s sa nd,a ta l lt i me sdur i ngt hene got i a t i onsf ort hes a l eoft hi ss ha r e ,a c t e dont hebas i st ha the r c ons e ntwase s s e nt i a l . Mr sBe a rr e pl i e dt ha ts heha d noobj e c t i ont ot hes a l e . La t e rRuddoc kbe c a me ba nkr upta ndMr sBe arputi npr oof sofde bt sf ormone ypa i dt oRuddoc k.Theot he rc r e di t or ss oughtt o ha vet he s epr oof se xpunge d. Thec our ta gr e e dwi t ht heot he rc r e di t or s .Al t houghMr sBe a rt ooknopa r ti nt heda yt oda yma na ge me nt oft hebus i ne s s ,s hewa sapa r t ne ra nd c oul d notpr ovea ga i ns tt hee s t a t eoft hei ns ol ve ntde bt ori n c ompe t i t i onwi t hhi sot he rc r e di t or s . Ac c or di ngt oMol e s wor t hJa t58 : Thege ne r a lpr i nc i pl eoft hea ut hor i t i e si s ,t ha tar i ghtt opar t i c i pa t ei npr ofit sc ons t i t ut e sapa r t ne r : a ndt ha t ,not wi t hs t a ndi ngs t i pul a t i onofbe i ngdor mantornotl i a bl et ol os s e s .Butt he r ea r ec a s e si n whi c hi tha sbe e nhe l dt ha tt her e l a t i ver i ght sa ndl i abi l i t i e soft hepe r s onsde a l i ngs of a rva r i e df r om t hos eus ua lbe t we e npa r t ne r s ,t ha tt hege ne r a lr ul es houl dnotappl y .Ma nyoft hos ec a s e sr e ga r d l oa nswhi c hc ont i nuet obes uc h.Thi sma t t e rha dnot hi ngl i keal oa n;i twasapur c ha s ef orapr i c e ne ve rt ober e pa i d.Ast owha twa ss a i doft hegr ands on,t houghi tma yha vebe e nt hemot i vef ort he

de a l i ng,nor i ght st ohi mf or me dpa r toft hec ont r ac t .Hegotnot hi ngwhi c hwasnots ubj e c tt oMr s Be a r " sdi s c r e t i on.Sher e t a i ne da l lt her i ght sofador mantpa r t ne r . . . . Thec a s e ss how t ha tt her e l a t i onofpa r t ne r si st her e s ul toft he i rr e s pe c t i ves ubs t a nt i a lr i ght s ,not oft hewor dse mpl oye d,andt ha tt her e s ul toft hepar t ne r s hi pl i a bi l i t yf r om pa r t i c i pa t i onofpr ofit s c a nnotbee vade dbyt hef or m ofc onve ya nc e .I ns ubs e que ntma t t e r sMr sBe a ra ndMrRuddoc k t r e a t e de a c h ot he ra spar t ne r s ,a st ohi sc ont e mpl a t i ng t os e l lanot he rf our t ha nd a dd a not he r par t ne r ,whi c hs hewaswi l l i ngt odo ,buti nwhi c ht he yc or r e s ponde dont hemut ua lunde r s t a ndi ng t ha the rc ons e ntwasne c e s s a r y . . . In Re Ruddock (1879), Mrs Bear was deemed to be a partner despite the express agreement that she would not be a liable as a partner for any losses and that Ruddock would indemnify her. Therefore, when Ruddock later went bankrupt, it was held that Mrs Bear was in fact a partner due to her receiving a share of net profits and that Ruddock and Bear corresponded on the mutual understanding that her consent was necessary for all matters. Beckingham v Port of Jackson & Manly Steamship Company (1956) (Sinking submarine) – PAGE 35 OF TEXTBOOK **Exception to share of profits rule – where it is a payment to agents or employees** 1. Syndicate formed and wanted to exhibit the sub 2. Approached port Jackson with a contract to exhibit 3. Contract signed – exhibit, pj sells the tickets, lets people on board, and has the right to decide who goes on board 4. Storm was approaching, PJ drove the sub into the middle of the harbour to avoid any damage caused to its wharf by the sub 5. They weren’t in common. They just had the right to sell tickets and let people on board, They only wanted PJ’s help because they had the wharf. It was a joint venture. S i mi l a r l y ,i nBe c k i ng h a ma ndo t h e r svPo r tJ a c k s o na ndMa nl ySt e a ms h i pCo mp a nya ndAno t h e r( 1 95 7 )5 7SR ( NS W)4 0 3 ,as yndi c a t eofni nepe r s onsha dbe e nf or me dt opur c ha s ea ndr e nova t eas ubma r i nea ndt he nt o e xhi bi tt hes ubma r i net ome mbe r soft hepubl i cf oraf e e .I nor de rt oa c hi e vet hi sobj e c t i ve ,t hes yndi c a t e me mbe r se nt e r e di nt oa na r r ange me nti n19 4 6wi t ht hePor tJ a c ks ona ndMa nl ySt e ams hi pCompa ny( “ t he s t e a ms hi pc ompany” ) ,whe r e b yt hes ubmar i nec oul dbemoor e da tawha r f . Thes yndi c a t eme mbe r spur c ha s e dt hes ubma r i neandi twa smoor e da dj ac e ntt ot hes t e a ms hi pc ompany’ wha r fa tMa nl yCove .Whi l et hes ubmar i newa sbe i ngmoor e das t or m br okeout ,a nd,t hes ubma r i ne ,t he s t e a ms hi pc ompanya r gue d,be c a meada nge rt ot hewha r fa nd wasi nda nge rofbe i ngs t r a nde d. The s t e a ms hi pc ompa nyt he r e upone nga ge dt heWa r a t a hTuga ndS a l va geCoPt yLt d( “ t het ugc ompany”) ,t o t a ket hes ubmar i nei nt omor eope nwa t e r s-t opr ot e c ti ta ndt hewha r f .Whi l ei twa sbe i ngt o we di twa s wr e c ke d. Be c ki ngham a ndt heot he rpl ai nt i ffswe r et hes ur vi vi ngme mbe r sandpe r s ona lr e pr e s e nt a t i ve soft heni ne s yndi c a t eme mbe r s .The ybr oughtl e ga lpr oc e e di ngst or e c o ve rda ma ge sf orl os s e sont heba s i soft r e s pa s s a ndne gl i ge nc ei nc onne c t i onwi t ht hemoor i nga ndt owi ngoft hes ubma r i ne . Ani s s uewhi c hha dt obede t e r mi ne dwas ,whowa st ober e s pons i bl ef ort hel os ss us t a i ne dasar e s ul tof t hede s t r uc t i on oft hes ubmar i ne ?I ft heme mbe r soft hes yndi c a t ea nd t hes t e a ms hi pc ompanywe r e par t ne r s ,t he nt hes t e ams hi pc ompa nywoul d notbel i a bl ef ort hel os s . Theme mbe r soft hes yndi c a t e a r gue dt ha tt hea r r a nge me nte nt e r e di nt owa soneofl e s s e ea ndl e s s or-whe r e byt hes yndi c a t el e as e dt he wha r ff r om t hes t e a ms hi pc ompa ny ;a l t e r na t i ve l yt hea r r a nge me ntwa soneofpr i nc i pa la nda ge ntwi t ht he s t e a ms hi pc ompanybe i nga ppoi nt e dasa ge ntoft hes yndi c a t ef ort hepur pos eofma na gi ngt hes ubma r i ne . I nc ont r a s tt ot he s et woa r gume nt s ,t hes t e a ms hi pc ompanya r gue dt ha tt her e l a t i ons hi pwa sapa r t ne r s hi p. I nde t e r mi ni ngt hi si s s ue ,t hec our te x ami ne dt hea gr e e me ntbe t we e nt hepa r t i e s .I twa snot e dbyt hec our t t ha tt hea gr e e me ntpr ovi de d:

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t ha tt hes ubma r i newa st obeke ptne art hes t e a ms hi pc ompany’ swha r fi nMa nl y

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Covef oraf e eof£ 4 00pe rannum; f ort heappoi nt me ntoft hes t e a ms hi p Company asmana ge r st ot hes ubma r i ne e xhi bi tf ort hr e et ofiveye a r sonac ommi s s i onof4 0 % oft headmi s s i onf e e sl e s ss ome c os t s ; f orpr ofitt obes ha r e dona6 0 4 0ba s i si nf a vouroft hes yndi c a t e ; t ha twor kt o be doneon t hes ubma r i newa st o be a r r a nge d by t hes t e ams hi p c ompanybutpa i df orbyt hes yndi c a t e ; t ha t‘ owne r s hi pa ndpos s e s s i on’oft hes ubma r i newa st or e ma i nwi t ht hes yndi c a t e ; t ha tt hes t e a ms hi pc ompanywa st ounde r t akege ne r a lmana ge me nta ndbet hes ol e j udgeofwhoi st obeal l owe da c c e s st ot hes ubma r i ne ; t ha tt hes t e a ms hi pc ompa nywa sa c t i ng‘ a sa ge ntf ort hes yndi c a t e ’ ; f ort hes t e a ms hi pc ompanyt obee x e mpt e df r om l i a bi l i t yt ot hi r dpa r t i e s ; f ore i t he rpa r t yt ot e r mi na t ebynot i c eaf t e rt hr e eye a r s-i ns uc hc a s e st hec os tof r e movaloft hes ubma r i newa st obebor nebyt hes yndi c a t e ; t hes t e ams hi pc ompanywa st obet hes ol ej udgeofwhoi st obeal l owe dac c e s st ot he s ubmar i ne ;

I nt he s ec i r c ums t a nc e s ,t heSupr e meCour tofNe w Sout hWa l e she l dt ha tt he r ewa snopa r t ne r s hi pbe t we e n t hes t e a ms hi pc ompa nya ndt hes yndi c a t e . Thes t e ams hi pc ompa nywasa ni nde pe nde ntc ont r ac t ora nd t he r e f or epot e nt i a l l yl i a bl ef orne gl i ge nc e . Thec our tr e f e r r e dt oLor d Ha l s bur y’ sr e ma r ksi n Ada mv Ne wb i g gi ng( 1 8 8 8)1 3AppCa s30 8whe r ehi sLor ds hi ps t a t e d: I fapa r t ne r s hi pi nf a c te xi s t s ,ac ommuni t y ofi nt e r e s ti nt hea dve nt ur ebe i ng c a r r i e d on i nf a c t ,no c onc e a l me ntofna me ,nove r ba le qui val e ntf ort heor di na r yphr a s e sofpr ofitandl os s ,noi ndi r e c te xpe di e nt f ore nf or c i ngc ont r olove rt hea dve nt ur ewi l lpr e ve ntt hes ubs t a nc ea nd r e al i t yoft het r a ns a c t i onbe i ng a dj udge d a pa r t ne r s hi p. . .a nd no ‘ phr a s i ng ofi t ’by de xt e r i ousdr af t s me n. . .wi l la ve r tt he l e ga l c ons e que nc e soft hec ont r a c t . In Beckingham v Port of Jackson and Manly Steamship Company (1956), it was held that there was no partnership between the steamship company and the syndicate. There was an express provision for sharing of profits, but it was equally clear that the parties had never actually intended to become partners. The share of profits was merely the agreed means whereby the company was to be remunerated for its services as the company’s agent. Therefore, Port of Jackson and Manly Steamship Company was potentially liable for negligence. Smith v Anderson (1880) – Pg 11 Car r yi ngonofabus i ne s s Thet a s kofde t e r mi ni ngwha ti sme a ntbyt hephr a s e‘ c a r r yi ngonbus i ne s s ’ha sr a i s e dt hei s s ueofwhe t he r t he r ei sane e dt oe s t a bl i s hs omer e pe t i t i ve ne s sofa c t i on,a soppos e dt oi s ol a t e da c t i ont a ke nbypa r t i e s .A numbe rofe a r l yde c i s i onse mphas i s e dt hene e df orc ont i nui t yorr e pe t i t i on.I nSmi t hvAnde r s o n( 1 88 0 )1 5 ChD 2 47 ,agr oupofi nve s t or ss ubs c r i be df ort hepur c ha s eofs har e st hr oughat r us ti nva r i ouss ubmar i ne c a bl ec ompani e s . Thes ha r e swe r es ol dt ot he s ei nve s t or sbyt het r us t e e soft het r us twhot he ni s s ue d c e r t i fic a t e st ot hes ubs c r i be r s .A £ 1 0 0c e r t i fic a t ewa si s s ue df ore a c h£ 9 0c e r t i fic a t et ha twa ss ubs c r i be d. Smi t h,a l ongwi t hmor et ha n2 0ot he rpe opl e ,r e c e i ve dac e r t i fic a t e .La t e rSmi t ha ppl i e dt owi ndupt he t r us tont heba s i st ha ti twasani l l e ga las s oc i a t i onunde rs4oft heEngl i s hCo mp a ni e sAc t1 86 2 .Se c t i on4of t hi sAc tpr ovi de ds of a raswasr e l e va nt : Noc ompany ,a s s oc i a t i onorpa r t ne r s hi pc ons i s t i ngofmor et ha nt we nt ype r s onss hal lbef or me da f t e rt he c omme nc e me ntoft hi sAc tf ort hepur pos eofc a r r yi ngona nyot he rbus i ne s st ha thasf ori t sobj e c tt he a c qui s i t i on ofga i n byt hec ompa ny ,a s s oc i a t i on orpa r t ne r s hi p,orbyt hei ndi vi dua lme mbe r st he r e of , unl e s si ti sr e gi s t e r e d. Theque s t i onwaswhe t he rt het r us twa sapar t ne r s hi p.Thec our tl ooke da tt hena t ur eoft het r us tandof t her e l a t i ons hi poft hos ei nvol ve di ni t .Al t houghe a c hhol de rofac e r t i fic a t ec oul de l e c tt r us t e e soft het r us t a ndr e c e i ve dat r us tr e por t ,a ndt hee l e c t e dt r us t e e sha dc e r t a i nma na ge me ntpo we r s ,i nc l udi ngt hepo we r

t os e l lt hes har e sa ndt or e i nve s tordi s t r i but et hepr oc e e ds ,i twa snot e dt ha tt het r us t e e sha dnopo we rt o s pe c ul a t ea nd t ha tt he r e we r e no mut ua lr i ght sa nd obl i ga t i onsa mongs tt hos ei nvol ve d. I nt he s e c i r c ums t a nc e s ,t hec our the l dt ha tt het r us twa snotapar t ne r s hi pa st he r ewa snoa s s oc i a t i on f ort he pur pos eof‘ c a r r yi ngonabus i ne s s ’ . Ac c or di ngt oBr e t tLJa t27 7 8 : Thee xpr e s s i on‘ c a r r yi ngon'i mpl i e sar e pe t i t i onofa c t sa nde x c l ude st hec a s eofa na s s oc i a t i onf or me df or doi ngonepa r t i c ul a ra c twhi c hi sne ve rt ober e pe a t e d.Tha ts e r i e sofa c t si st obeas e r i e sofa c t swhi c h c ons t i t ut eabus i ne s s. . . Thea s s oc i a t i on,t he n,mus tbef or me di nor de rt oc a r r yonas e r i e sofac t sha vi ngt he a c qui s i t i onofga i nf ort he i robj e c t . In Smith v Anderson (1880), it was held that there was no partnership as the trust had no association for the purpose of ‘carrying on a business’. The expression ‘carrying on’ implies a repetition of acts having the acquisition of gain for their object, and excludes the case of an association formed for doing one particular act which is never to be repeated.

Distinguishing Partnerships from other types of business ventures

These subsections sum themselves up – find the relevant subsection to the case. Essentially extra clues to determine whether a partnership exists under s5

B – pg 31 C – pg 31 C and following – specific paragraphs on pg 33 and following C(ii) – Beckingham v Port of Jackson and Manly Steamship Company

AGENCY – s8-11

The acts of every partner who does any act that is in the usual way of business of the kind carried on by the firm bind the firm and his or her partners unless: the acting partner has no authority to act for the firm in that particular matter AND the person with whom the partner is dealing either knows that the partner has no authority, or does not know or believe the partner to be a partner.

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If one partner signs a document, it will bind them all (each partner can act on the others’ behalf) So long as their act (signature etc.) is in the usual way/character/behaviour of the firm of that type If a partner overshoots, we know we’ve got two innocent victims (the partner if partnership doesn’t honour it, and the other partners if they didn’t know about it) Unless the outsider acted unusually, they will be protected unless they KNEW they were acting unusually/not in their domain (and therefore they are guilty)

A partnership is a mutual agency – big agency issues -

If something arises within the scope of a partnership business, if it’s transacted in the normal way for businesses of that type, then section 8 steps in to protect outsiders ...