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A fact-based scenario question based on partnership law (Topic B) Essay Example

  • Category:
    Business
  • Document type:
    Essay
  • Level:
    Undergraduate
  • Page:
    2
  • Words:
    1268

Partnership Business 6

Partnership Business

Question 1: Whether the Business is Partnership

Determining whether a partnership exists is an important process as some of the parties do not have clear agreements and objectives when going into business1. Grace does not have the required accounting knowledge therefore keeping accounting records is a key challenge. The affairs of their business are therefore looked into by an external party (Fred Snell) who has the accounting information and knowledge regarding the running of the business. Grace only signs the documents to acknowledge the undertakings. The intention of the party during the establishment of the business is an import aspect during the process. The intention of Grace and Dave when they took over the business was to make profits2. According to section 5(1), of the partnership Act 1958 (Vic), partnership is the relation that subsists between persons carrying on a business in common with a view of making profit3. Grace and Dave are carrying out the business in common with a view of making profits. Dave works full time as the manager while Grace works part time. This is an indication that they are carrying out the business in common which makes the partners. A mutual obligation between Grace and Dave makes them partners. Dave working as the manager and Grace working on a part time basis is an indication that the parties are working together and behalf of each other making them partners. In the case of Minter v Minter, it was highlighted that partnership exists when the parties are operating their business with a view of making profits4. This is regardless of the whether or not the business is able to emerge profitability. This is considering that the business may end up making losses despite the intention to make profits.

According to section 6(3), sharing of profits is one of the factors indicating partnership5. Dave and Grace have a joint marital account where all the profits from the business are kept. Grace uses part of the profit for paying household and personal expenses. This is an indication that the profit from the business is shared between Grace and Dave. In the case of Badeley v Consolidated Bank and Re Megevand; Ex parte Dalhasse, it was highlighted that repayment of the loans from the profit with an agreement from both parties is considered partnership6. A loan had been borrowed from the bank and it was repaid from the profit made from the business. All the documentations of the business are also in the name of the business as opposed to that of Grace or Dave. This indicates that there is a partnership between the Dave and Grace. The two children of Grace and Dave work on a part time basis and are paid on an hourly basis. In the case of Stekel v Ellice, it was highlighted that salaried partners may be employees7. Grace is not an employee a she is not paid on an hourly basis as her children but she directly earns from the profits made by the business. Grace is thus a partner and the business is a partnership type between her and her husband.

Question 2

According to section 9, partners can bind the firm when they have actual or apparent authority8. In a partnership, every partner is considered as an agent of the firm and his or her other partner. A partner can act with apparent authority if their actions are within the scope of the partnership business9. A contract to purchase two cruise tickets does not fall within the scope of the partnership business. This is more of a private and personal issue. Grace was not consulted by Dave when the transaction was being made and only learnt from the accountant when the purchase had already been made. Objective view is usually used to determine whether a transaction is similar to the activities that the firm usually carries out or not. The purchase of the cruise tickets is not part of a transaction that is usually carried out by the business. A partner should be informed of the transaction if it is being carried out on behalf of the business. This was highlighted in the case of Hirst v Etherington10. When this does not happen, the firm cannot be bound by the act of the individual. According to section 11, when a partner uses the credit of a firm for purposes not connected to the activities of the business, the firm is not bound. The partnership is therefore not bound by the transaction made by Dave as it did not involve the usual activities of the firm and it was for personal purpose.

Question 3

According to section 21(2), a partner who retires can be held liable for debts incurred before retirement11. However, according to section 21(3), a retiring member can be discharged from any existing through an agreement with the new members of the firm and the creditors12. In order to avoid any liabilities, it is important for Grace to ensure that there is an agreement with Dave and Deidre which excludes her from any liability that had been incurred by the firm before her retirement. The presence of an agreement will also ensure that she is not liable for any debt
that is incurred after her retirement13. According to section 18(1), a holding out exception applies for debts after retirement which may through knowingly or unknowingly allow representation at the company. Grace must ensure that her name does not remain in the letter head or is not used in any aspects of the organization. In the case of Lynch v Stiff, it was highlighted that knowingly allowing the name to remain in the letter head is a sufficient representation that leads to liability after retirement14. Grace must ensure that she is not involved in any form of representation. In the case of Tower Cabinet & Co v Ingram, the retired partner was not liable as he had not knowingly allowed himself to be represented15. It is important for Grace to ensure that she reads all the documents carefully before signing. Where necessary, the legal advice should be sought for the purposes of interpretation of the documents.

References

Articles

Hanrahan, P., Ramsay, I., & Geof, S., (2016). Commercial Applications of Company Law. Wolters Kluwer CCH, 17th edition. ISBN 9780190304362.

Stephen, G., et al, (2015). Understanding Business Law. LexisNexis Butterworths, 7th edition.

Articles

Minter v Minter (2000) BPR 18, 133

Badeley v Consolidated Bank and Re Megevand; Ex parte Dalhasse, (1888) 38 Ch

Stekel v Ellice [1973] 1 WLR 191

Hirst v Etherington [1999] Lloyd’s Rep PN 938

Lynch v Stiff [1943] HCA 38-68 CLR 428

Tower Cabinet & Co v Ingram [1949] 2 KB 397

Legislations

Partnership Act 1958 (Vic)

1
Hanrahan, P., Ramsay, I., & Geof, S., (2016). Commercial Applications of Company Law. Wolters Kluwer CCH, 17th edition. ISBN 9780190304362.

2
Partnership Act 1958 (Vic)

3
Partnership Act 1958 (Vic)

4
Minter v Minter (2000) BPR 18, 133

5
Partnership Act 1958 (Vic)

6
Badeley v Consolidated Bank and Re Megevand; Ex parte Dalhasse, (1888) 38 Ch

7
Stekel v Ellice [1973] 1 WLR 191

8
Partnership Act 1958 (Vic)

9
Stephen, G., et al, (2015). Understanding Business Law. LexisNexis Butterworths, 7th edition.

10
Hirst v Etherington [1999] Lloyd’s Rep PN 938

11
Partnership Act 1958 (Vic)

12
Partnership Act 1958 (Vic)

13
Hanrahan, P., Ramsay, I., & Geof, S., (2016). Commercial Applications of Company Law. Wolters Kluwer CCH, 17th edition. ISBN 9780190304362.

14
Lynch v Stiff [1943] HCA 38-68 CLR 428

15
Tower Cabinet & Co v Ingram [1949] 2 KB 397