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Partnerships
Formation of a partnership
Partnership

A partnership is the relation which subsists between persons carrying on a business in common with a view
of profit (s 1(1) PA 1981)

Three requirements:
Partners must:
i.

Carry on a business;

o An occupation or profession with some degree of continuity;

o A partnership may exist for a single venture or undertaking (United Dominions v Brian).
o
ii.

Preliminary activities and mere slide w2a

In common;
o

Partners must carry on the same business;

The business must be carried on either by or on behalf of all the partners. (smith v
Anderson)

o
iii.

Indicators slide w2a pg10

Share profits from the business; and

o

Rule1 1: Co ownership of property: Joint ownership of property does not of itself create a
partnership whether or not the tenants or owners share any profits (s 2(1)). Eg there is no
partnership between a husband and wife who jointly own and rent residential properties
(Cripps v FCT); (Davis v Davis)

Similarly, the sharing of gross revenue does not of itself create a partnership (s 2(1)(b)).
This includes royalties.

Restrictions on partnership formation

Cannot have >20 members (s 115(1) Corporations Act);

An infant or minor may be a partner (eg the minor in Whundo) but they cannot be sued for debts;

A partnership cannot be formed if doing so would be illegal under the statute or common law.

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Who are the partners?

Remember: A company can be a partner.

Share of profits
Receipt by a person of a share of the profits of a business is prima facie evidence that the person is a partner
of the business (s 2(1)(c)).

Liability of partners

Every partner is jointly liable for all debts and obligations of the firm (s 9(1));

Partners are liable in negligence for any wrongful act or omission of a partner acting in the ordinary course
of the business of the firm to a 3rd party (s 10(1))); and

Relationship between partners (week3c)

Fiduciary obligations

Partners are fiduciaries to each other partner (Helmore v Smith);

Equitable obligations include:

o

To act in good faith and honesty;

To provide full accounts of all information and assets in a partners possession or control which
are material to the partnership business;

To avoid conflicts of interest;

To avoid profiting personally from partnership opportunities and information; and

To account for benefits obtained from partnership business.

After a partnership is dissolved, partners fiduciary obligations continue until the assets are distributed
(Manley v Sartor)

Statutory obligations:
o

Partners are bound to render true accounts and full information of all things affecting the
partnership to any partner (s 28(1));

Every partner must account to the firm for any benefit derived by him without the consent of the
other partners, from any transaction concerning the partnership or from any use by him of the
partnership property, name or business connection (s 29(1)). Includes transactions undertaken

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after a partnership is dissolved by the death of a partner, and before the affairs have been
completely wound up (s 29(2));
o
o

Partner cannot compete with the firm (s 30(1)).

Same nature; mere incidental connetion not enough (Aas v Benham)

Must be actual competition between business (Trimble v Goldberg)

Statutory Right of Partners

Under s 24, the default rules

Expulsion of partners

Need an express power in the partnership agreement to expel a partner (s 25);

Such power will be read strictly in favour of the expelled partner:

o

In Bond v Hale, clause said that one partner could be expelled by the joint action of the other
partners. Therefore, 3 of the 5 partners could not expel the other 2 at the same time;

In Russell v Clarke, similar facts: 8/10 partners attempted to expel the other two but notice of
expulsion was required by all other partners.

Must in good faith (Blisset v Daniel)

Contracts between partnership and 3rd parties

Apply normal AGENCY PRINCIPLES;

That is, the partner is the agent and the firm is the principal.

Implied authority
Under s 5, every partner is an agent of the firm for the purpose of the business of the partnership, and if he
does any act for carrying on in the usual way business of the kind carried on by the firm it will bind the firm
(unless the partner so acting has no authority to do that act, and the 3rd party knows that or does not know if
he is a partner ie apparent authority does not apply);

That is, every partner is an unlimited agent (Bairds Case);

If no agency, then the partner is personally liable for the debt.

See also LIABILITY OF PARTNERS.

Examples:

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Mercantile Credit: The partner was held out by the firm as having authority, and therefore the
partnership was bound;

Construction Engineering: CE and Tambel entered into a contract; T and Hexyl were partners; CE
wanted to go after H. Was T acting as agent for H? Held: NO T did not have actual authority to
contract for H; T did not represent to CE that it was contracting for H; and CE did not even know of
the existence of H (therefore, no apparent authority);

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