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Chapter 19 - Partnership and joint venture law. At the end of this chapter you should understand: the definition of the term ‘partnership’, the tests used to decide if partnership exists, how a partnership is created, the matters that should be included in a partnership agreement,...
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Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning Copyright © 2000 McGraw-Hill Australia Partnership and joint venture law Chapter 19 Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning Partnership • A partnership is the carrying on of a business in common, with a view of making a profit Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning Copyright â 2000 McGraw-Hill 19-3 Australia Definitions ã Carrying on a business – continuity or repetition of action to be carried on in the future • In common – acting on behalf of each other • View to a profit – distribution of profits results Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning Copyright © 2000 McGraw-Hill 19-4 Australia Tests for determining the existence of a partnership • Common Law Rules - Intention - Agency - Sharing of profits and losses • Statutory Rules - Joint ownership of property - Sharing of gross returns - Receiving a share of the profits Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning Copyright © 2000 McGraw-Hill 19-5 Australia Partnership agreement • Can be verbal, written or by conduct • A written partnership agreement is desirable as disputes are easier to resolve • Overrides the provisions of the relevant Partnership Act Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning Copyright © 2000 McGraw-Hill 19-6 Australia Contents of a standard Partnership Agreement • • • • • • • • • • • • • • • • • • • Names and addresses of partners Name of firm Place or places from which business will operate Duration of the partnership Capital contribution of each partner Interest of each partner Share ratio of profits and losses Whether salaries will be paid to partners Management duties of each partner Details of keeping accounts Limitations in the authority of partners Appointment of bankers Cheque signing Retirement of partners Admittance of partners Dissolution of partners Setting up competing business Resolving disputes Valuing of shares for retiring/deceased partners Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning Copyright © 2000 McGraw-Hill 19-7 Australia Limitations for partners • Capacity Minors - not liable for partnership debts Lunatics - limited if lunacy known Bankrupts - must disclose bankruptcy Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning Copyright © 2000 McGraw-Hill 19-8 Australia Relationship between partners Partners are in a Fiduciary Relationship: • Partners must render true accounts • Partners must advise full information on all matters affecting the partnership • Partners must account for private profits made without consent of other parties • Partners cannot carry on a business of the same nature in competition with the partnership, without the consent of the other partners • Partners may assign their interest in the partnership to another person Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning Copyright © 2000 McGraw-Hill 19-9 Australia Relationship between partners Rules regarding the relationship between partners if no Ppartnership Agreement exists: • All partners are entitled to share equally in capital of the business • All partners are entitled to share equally in profits (and losses) of the business • Partners are entitled to be indemnified by the firm in respect of payments made and liabilities incurred • A partner who makes an advance or payment beyond their capital contribution is entitled to interest • A partner is not entitled to interest on capital subscribed until profits have been ascertained • Every partner may take part in the management of the firm Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning Copyright © 2000 McGraw-Hill 19-10Australia Relationship between partners (continued) • • • • • • No partner will be entitled to remuneration for working in the partnership business No person will be introduced as a partner without the consent of all other partners Differences regarding ordinary matters related to the business of the partnership can be decided by a majority of partners No change can be made to the nature of the partnership business unless all partners consent The partnership books are to be kept at the place of business of the partnership Partners cannot be expelled from the partnership Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning Copyright © 2000 McGraw-Hill 19-11Australia Relationship of partners to third parties Partners will be bound by each other’s actions on the basis of an agency relationship, involving actual and apparent authority, where: • transaction is within the scope of the business • transaction has been affected in the usual way • the third party involved in the transaction must either: - know or believe the partner is acting as a partner, or - be unaware of any lack of authority to act (includes nonpartner who is believed to be a partner) Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning Copyright © 2000 McGraw-Hill 19-12Australia Actual and apparent authority Actual - Authority to acts specified in Partnership Act or Partnership Agreement Apparent (implied) - Authority that the partner appears to have to third parties E.g - selling goods and chattels of Copyright the firm - purchasing on behalf of the 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides© prepared by Kay Fanning 19-13Australia Copyright 2000 McGraw-Hill firm Liability of Partners • Contracts - Each partner is jointly liable • In tort - Each partner is liable jointly and severally • Criminal wrongs - Each partner is liable jointly and severally where there has been a breach of a statute that does not require intent as an element • In bankruptcy - If a partner is bankrupt, partnership may be dissolved • As trustees - No liability for the actions of other partners acting as trustees independent of the partnership • Holding out as partner - Liable as if partner of partnership • Outgoing partner - Continues to be liable for debts of partnership incurred before retirement Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning Copyright © 2000 McGraw-Hill 19-14Australia Liability Joint liability The partners must be sued jointly and not individually Joint and several liability: Every partner is liable jointly and individually Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning Copyright © 2000 McGraw-Hill 19-15Australia Partnership property Includes all property brought into the partnership, or which is afterwards acquired on account of the partnership Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning Copyright © 2000 McGraw-Hill 19-16Australia Dissolution of partnership By action of the partners • At expiry of time • By giving notice • By death of a partner • By insolvency of a partner • Where partnership property is charged Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning Copyright © 2000 McGraw-Hill 19-17Australia Dissolution of Partnership By court action when • Partner found to be of unsound mind • Partner becomes permanently incapable of performing his/her part of the partnership contract • Partner is guilty of conduct the court regards as calculated to prejudicially affect the carrying on of the business • Partner persistently breaches the partnership agreement • Partnership business can only be carried on at a loss • Other circumstances that are just and equitable grounds for dissolving the partnership Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning Copyright © 2000 McGraw-Hill 19-18Australia Dissolution Notice of dissolution • Personal notice to persons who have had dealings with the firm • Notification in government gazette • Stationery altered • Registered business names adjusted at Corporate Affairs Commission Distribution of Assets • Loans from partners • Creditors satisfied • Property on basis of contributions of each party • Debts and liabilities satisfied • Surplus assets divided in proportion, reflecting profit sharing ratio Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning Copyright © 2000 McGraw-Hill 19-19Australia Joint ventures • An association of persons for the purposes of a particular trading, commercial, mining or other financial undertaking or endeavour, with a view to mutual profit E.g Mining ventures Property development Entertainment agreements Share farming agreements Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning Copyright © 2000 McGraw-Hill 19-20Australia Comparison of joint venture and partnership JOINT VENTURE Oneoff enterprise Profits paid separately Share physical output of venture Liable severally for debts of joint venture Manager not used to oversee Copyright PARTNERSHIP Continual business activity Profits paid to partnership Share profits of partnership As discussed Manager may be used 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning Copyright © 2000 McGraw-Hill 19-21Australia Advantages of a joint venture Participants are not liable for actions of other joint venturers receive income separately are able to compete with each other Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning Copyright © 2000 McGraw-Hill 19-22Australia ... existence of a partnership • Common Law Rules - Intention - Agency - Sharing of profits and losses • Statutory Rules - Joint ownership of property - Sharing of gross returns - Receiving a share of the... distribution of profits results Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning Copyright © 2000 McGraw-Hill 1 9- 4... profit sharing ratio Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning Copyright © 2000 McGraw-Hill 1 9- 19Australia