Existence of Partnerships
Research Essay
‘The existence of a partnership is to be determined from what the parties do rather than what the parties call themselves.’
Introduction
Partnerships, one of the simplest forms of business structure, are creatures of contract and trust.1 Due to the contractual nature and unlimited liability of partnerships it is essential that people understand the definition of partnerships in order to avoid facing loss of personal property in situations where the intention was not to create a partnership. What the parties call themselves is irrelevant – the existence of a partnership can be determined from what the parties do. A partnership can be defined as ‘the relation which subsists between persons carrying on a business with a view to profit’.2 As indicated by this definition, there is no relevance placed on what partners call themselves when determining if a partnership exists.
Discussion
The definition of a partnership is somewhat misleading as determining the existence of a partnership is not as simple as it sounds. The Partnership Act 1981 (Qld) encompasses many definitions and rules surrounding partnerships and the definition of a partnership is provided to differentiate a partnership from other forms of business structures that exist. There are four fundamental characteristics that must be satisfied in order for a partnership to exist:3
1. A relationship between persons
The relationship between persons is usually voluntary and is a valid agreement between the parties. It stands to reason that the relationship must exist for a partnership to be in existence otherwise an individual person in business would be operating as a sole trader.
2. Carrying on a business
Carrying on a business indicates that there is repetition of acts and the establishment of a corporate enterprise which is often well before the business makes its first sale transaction.4 A transaction occurring in isolation or a single venture does not satisfy this condition of
‘The existence of a partnership is to be determined from what the parties do rather than what the parties call themselves.’
Introduction
Partnerships, one of the simplest forms of business structure, are creatures of contract and trust.1 Due to the contractual nature and unlimited liability of partnerships it is essential that people understand the definition of partnerships in order to avoid facing loss of personal property in situations where the intention was not to create a partnership. What the parties call themselves is irrelevant – the existence of a partnership can be determined from what the parties do. A partnership can be defined as ‘the relation which subsists between persons carrying on a business with a view to profit’.2 As indicated by this definition, there is no relevance placed on what partners call themselves when determining if a partnership exists.
Discussion
The definition of a partnership is somewhat misleading as determining the existence of a partnership is not as simple as it sounds. The Partnership Act 1981 (Qld) encompasses many definitions and rules surrounding partnerships and the definition of a partnership is provided to differentiate a partnership from other forms of business structures that exist. There are four fundamental characteristics that must be satisfied in order for a partnership to exist:3
1. A relationship between persons
The relationship between persons is usually voluntary and is a valid agreement between the parties. It stands to reason that the relationship must exist for a partnership to be in existence otherwise an individual person in business would be operating as a sole trader.
2. Carrying on a business
Carrying on a business indicates that there is repetition of acts and the establishment of a corporate enterprise which is often well before the business makes its first sale transaction.4 A transaction occurring in isolation or a single venture does not satisfy this condition of