Partnership (Australia)

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In Australia, each state has enacted legislation regarding partnerships.

Contents

JurisdictionRelevant Act
ACTPartnership Act 1963 [1]
NSWPartnership Act 1892 [2]
NTPartnership Act 1997 [3]
QldPartnership Act 1891 [4]
SAPartnership Act 1891 [5]
TasPartnership Act 1891 [6]
VicPartnership Act 1958 [7]
WAPartnership Act 1895 [8]

The definition of a partnership does not vary across jurisdictions, with each definition encompassing the following criteria in determining the existence of a partnership:

Who is a partner?

As to whether any given person involved with a company is a 'partner', guidance is found in s.6 of the Act. Several rules are given. The most common are as follows:

Rule 1 – s.6(1)provides that there must be joint-ownership. This is rather self-explanatory but the mere fact that persons may be joint-tenants or have part ownership do not in themselves create a partnership. Typically, where the rules below point towards a partnership, such would generally satisfy this rule.

Generally speaking, 'partners' must share gross-returns each according to their share in the business. Thus at first instance, if persons share the gross-returns, one would be inclined to say that a partnership exists. However, rule 2- s.6(2) complicates this. It provides that the sharing of gross returns will not in itself create a partnership.

All this notwithstanding, sharing of gross-returns is a strong indication of a partnership – particularly where a set percentage is prescribed in the agreement.

Rule 3- s 6(3) provides that the sharing of profits is prima facie evidence that a partnership exists. However, this is not categorical. To cite two examples where a person entitled to a share was not a partner is where that such person is a creditor or by virtue of s.6(3)(b) where that 'sharing of profits' is simply remuneration or a wage. Note in the latter example, s.28(6) provides that although partners are not entitled to remuneration – and thus he who receives remuneration is prima facie not a partner – this may be varied by partnership agreement. Therefore, receiving remuneration does not conclusively indicate against a partnership.

Rule 3 – s6(3) also concerns sharing of profits. Section 28 explains that all partners must contribute equally to firm’s losses.

Generally, where a person exercises those rights that would typically be exercised by a true partner, the more likely a partnership can be imputed. Section 28 includes a non-exhaustive list of partner’s rights.

The most common partners rights are the right to participate in the firms management (s.28(5)) (which can be illustrated by attending meetings) and the right to access the firm's books and confidential financial reports (s.28(9)). A partner without the right to participate in the firms management is often referred to as a silent partner.

But, at the end of the day there is flexibility in the partnership agreement and it is possible for the partners to consensually agree to exclude one or more of these partner's rights in relation to any given partner. Thus, put simply, the mere fact a person does not exercise these rights does not indicate categorically that they are not a partner.

Partner's liability

Perhaps the most important question for any partner is 'what is my liability under this arrangement'.

In essence, the liability of a partner (or even a non-partner who was 'held out' to be a partner see below) is significantly large. Every partner or person held out to be a partner is both an agent and principal of the firm and may thus bind the firm and the partners: s.9. Simply, each partner is his brother's proverbial keeper and will be responsible both legally and financially for the actions of the other partners in the general course of business.

To give a clear example, where one partner acts negligently and there is no indemnity insurance (or the indemnity insurer refuses to cover the loss), the liability of all partners will be joint and several: s.16. The cause of major distress for partners arises where the other partners become insolvent. The weight of total liability would rest on the solvent partners. Thus put simply, even if a person only had a 25% partner's share, he or she would be responsible for covering all 100% (potentially exorbitantly exceeding their investment) of the damage arising from the negligence if the other partners do not have the means to pay.

As alluded to above, the issue of "holding out", which is discussed in s.18(1) of the Act, is particularly relevant. "Holding out" refers to where a non-partner advertises himself or alternatively is advertised to the world as being a partner. This advertising can be either explicit and/or implicit

For example, where the firm permits a non-partner to 'sign off' on company accounts or documents or where a non-partner has an office next to the partner's or even enjoys the perks of the true partners, these are implicit indication to the world that the non-partner is actually a partner. To exemplify express indications, this would occur where a non-partner has his name on the company letter-head or to go even further, actively introduces himself as a partner.

Not only may the non-partner be held to be liable as a partner, the true partners will also be liable for the non-partners actions just as they would be for the actions of a true partner. This is provided that the relevant third-party was reasonably unaware of the non-partner's true position in the business and the conduct on the non-partner could be described as in the ordinary course of business. These two are generally part and parcel as if the transaction is not in the ordinary course of business, then the less likely it is that a third party would genuinely believe that the non-partner was a partner.

Limited partnership

Limited Partnerships are governed by Part III of the Act. The paramount characteristic of such a partnership is that a limited partner's liability will be limited: See s.49(1) definition.

Section 60(1) indicates that the liability of limited partner limited to amount shown in Register (Register of Limited Partnerships, see s. 57). Typically, a limited partner would make a contribution to the capital or assets of the partnership. An interpretation of s.60(2) suggests that the limited partner's liability would not exceed the contribution made or promised.

Other key points to note are that:

Dissolution of a Partnership

Dissolution of a partnership occurs when there is a change in the relationship of the partners, as a result of a partner ceasing to be associated or a part of carrying on the business. Situations which can be a catalyst for dissolution are

Where there has been misconduct by a partner, such that the assets of the partnership are at risk of dissipation, then it may be appropriate to appoint a receiver. [13]

See also

Related Research Articles

Corporation Legal entity incorporated through a legislative or registration process

A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity and recognized as such in law for certain purposes. Early incorporated entities were established by charter. Most jurisdictions now allow the creation of new corporations through registration. Corporations come in many different types but are usually divided by the law of the jurisdiction where they are chartered based on two aspects: by whether they can issue stock, or by whether they are formed to make a profit. Depending on the number of owners, a corporation can be classified as aggregate or sole.

Business Organization undertaking commercial, industrial, or professional activity

Business is the activity of making one's living or making money by producing or buying and selling products. Simply put, it is "any activity or enterprise entered into for profit."

Partnership Arrangement in which parties agree to cooperate to advance their mutual interests

A partnership is an arrangement where parties, known as business partners, agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, businesses, interest-based organizations, schools, governments or combinations. Organizations may partner to increase the likelihood of each achieving their mission and to amplify their reach. A partnership may result in issuing and holding equity or may be only governed by a contract.

Limited liability company US form of a private limited company

A limited liability company (LLC) is the US-specific form of a private limited company. It is a business structure that can combine the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation. A LLC is not a corporation under state law; it is a legal form of a company that provides limited liability to its owners in many jurisdictions. LLCs are well known for the flexibility that they provide to business owners; depending on the situation, an LLC may elect to use corporate tax rules instead of being treated as a partnership, and, under certain circumstances, LLCs may be organized as not-for-profit. In certain U.S. states, businesses that provide professional services requiring a state professional license, such as legal or medical services, may not be allowed to form an LLC but may be required to form a similar entity called a professional limited liability company (PLLC).

Joint-stock company Business entity which is owned by shareholders

A joint-stock company is a business entity in which shares of the company's stock can be bought and sold by shareholders. Each shareholder owns company stock in proportion, evidenced by their shares. Shareholders are able to transfer their shares to others without any effects to the continued existence of the company.

A joint venture (JV) is a business entity created by two or more parties, generally characterized by shared ownership, shared returns and risks, and shared governance. Companies typically pursue joint ventures for one of four reasons: to access a new market, particularly emerging markets; to gain scale efficiencies by combining assets and operations; to share risk for major investments or projects; or to access skills and capabilities. Work by Reuer and Leiblein challenged the claim that joint ventures minimize downside risk.

Limited liability partnership Partnership in which some or all partners (depending on the jurisdiction) have limited liabilities

A limited liability partnership (LLP) is a partnership in which some or all partners have limited liabilities. It therefore can exhibit elements of partnerships and corporations. In an LLP, each partner is not responsible or liable for another partner's misconduct or negligence. This is an important difference from the traditional partnership under the UK Partnership Act 1890, in which each partner has joint liability. In an LLP, some or all partners have a form of limited liability similar to that of the shareholders of a corporation. Unlike corporate shareholders, the partners have the power to manage the business directly. In contrast, corporate shareholders must elect a board of directors under the laws of various state charters. The board organizes itself and hires corporate officers who then have as "corporate" individuals the legal responsibility to manage the corporation in the corporation's best interest. An LLP also contains a different level of tax liability from that of a corporation.

Corporate law Body of law that governs businesses

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Limited partnership Form of partnership

A limited partnership (LP) is a form of partnership similar to a general partnership except that while a general partnership must have at least two general partners (GPs), a limited partnership must have at least one GP and at least one limited partner. Limited partnerships are distinct from limited liability partnerships, in which all partners have limited liability.

General partnership

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Company Association or collection of individuals

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There are many ways in which a business may be owned under the legal system of England and Wales.

General partner is a person who joins with at least one other person to form a business. A general partner has responsibility for the actions of the business, can legally bind the business and is personally liable for all the business's debts and obligations.

A partnership in the People's Republic of China is a business entity governed by the Partnership Enterprise Law passed by the Standing Committee of the National People's Congress to authorize and govern partnership enterprises. A partnership is a type of business entity in which partners share with each other the profits or losses of the business undertaking in which all have invested.

United Kingdom partnership law concerns the way that partnerships are formed or governed within the United Kingdom. Depending upon where the partnership was formed, English law, Scots law or Northern Irish law may apply in addition to statutes that create a framework across the UK. Under Scots law a partnership is a distinct legal entity and can borrow money from a bank in the name of the partnership, while English law only allows borrowing in the names of individual partners. Partnerships are a form of business association, which arises automatically when people carry on business with a view to a profit. Partners are jointly and severally liable, just as they own the property in common.

Partnership Act 1890 United Kingdom legislation

The Partnership Act 1890 is an Act of the Parliament of the United Kingdom which governs the rights and duties of people or corporate entities conducting business in partnership. A partnership is defined in the act as 'the relation which subsists between persons carrying on a business in common with a view of profit.'

South African company law

South African company law is that body of rules which regulates corporations formed under the Companies Act. A company is a business organisation which earns income by the production or sale of goods or services. This entry also covers rules by which partnerships and trusts are governed in South Africa, together with cooperatives and sole proprietorships.

A Special Limited Partnership or SLP is the Luxembourg version of the similar British Limited Partnership.

Parenting law in Australia encompasses a number of areas of law including:

References

  1. ↑ "PARTNERSHIP ACT 1963". austlii.edu.au.
  2. ↑ "PARTNERSHIP ACT 1892". austlii.edu.au.
  3. ↑ "Download Menu". austlii.edu.au.
  4. ↑ "PARTNERSHIP ACT 1891". austlii.edu.au.
  5. ↑ "PARTNERSHIP ACT 1891". austlii.edu.au.
  6. ↑ "PARTNERSHIP ACT 1891". austlii.edu.au.
  7. ↑ "Download Menu". austlii.edu.au.
  8. ↑ "Download Menu". austlii.edu.au.
  9. ↑ "PARTNERSHIP ACT 1892 – SECT 32 – Dissolution by expiration or otherwise". austlii.edu.au.
  10. ↑ "PARTNERSHIP ACT 1892 – SECT 33 – Dissolution by bankruptcy, death, or change". austlii.edu.au.
  11. ↑ "PARTNERSHIP ACT 1892 – SECT 34 – Dissolution by illegality of partnership". austlii.edu.au.
  12. ↑ "PARTNERSHIP ACT 1892 – SECT 35 – Dissolution by the Court". austlii.edu.au.
  13. ↑ "Joint venture and partnership disputes - the basics :: Litigant". www.litigant.com.au. Retrieved 3 August 2020.
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