Forming and Maintaining a Partnership

(Section1 - Partnership Act, 1980) defines partnership as “a relation which subsists between persons carrying on a business in common with a view to profit”. It refers to both natural and artificial person thus, both individual and corporation are eligible to form a partnership. Joint Venture agreement does not necessarily create partnership.

(Section 2 Limited Liability Partnerships Act, 2000) defines Limited Liability Partnership (LLP) as a hybrid between a partnership and a limited company “is a body corporate (with legal personality separate from that of its members)” Many provisions of the Companies Act 2006 also apply to LLPs.

With regard to creation, partnership must reflect three elements related to “carrying on business”, “in common”, and “with a view of profit”. If one of these elements is missing, the relationship is not one of partnership.

A partnership association may be formed by deed, in writing, verbally and lastly by assumption from the conduct of the parties. It involves an contract between two or more parties to enter into a legally binding relationship..This could be observed in the case of (Canny Gabriel Castle Jackson Advertising Pty Ltd V Volume Sales (Finance) Pty Ltd, 1974) where the court held that a partnership existed on four factors which were parties joined in a commercial enterprise, with a view to profit and mutual agreement towards all policy matters relating to the enterprise.

Partnership only exists if business is carried on by either one or more partners (without the need of equal interest) on behalf of all partners. All partners should have mutual rights, obligations (state of agency) and have the right of say in the management of business. In (Keith Spicer Ltd v Mansell, 1970), the court held that Mansell was not liable for the cost of furniture as there was no evidence to suggest that a partnership exists as they had not been carrying on a business in common with a view of profit.

Partnership business must be made jointly between partners or on behalf of partners, although it is not important to who handle the business. As was held in case of Checker Taxicab Co. Ltd. v/s Stone (1930) NZLR169, where it was found that both parties were carrying on a business. Each party appears to have benefited from the carrying on of a business by the other. They were not, however, carrying on a joint business. The two businesses were in fact distinct.

Section 2(3) of the Act, 1980 provides that sharing profits is prima facie evidence for the existence of partnership.