Business and Commercial Law: Partnership Structure and Liability

LST5CCL
Company and Commercial Law
Semester 1, 2018

Table of Contents
Introduction................................................................................................................................1
Part 1..........................................................................................................................................1
Business structure...................................................................................................................1
Status of participants..............................................................................................................2
Part 2..........................................................................................................................................3
Part 3..........................................................................................................................................5
Part 4..........................................................................................................................................6
Conclusion..................................................................................................................................7
References..................................................................................................................................9
Online.....................................................................................................................................9

INTRODUCTION
Business law can be defined as a regulatory body of law responsible for the simultaneous
governance of business and commerce in a standard manner. This body of law is generally
considered to be a branch of civil law which deals with the issue covered under the private
law as well as public law (Beatty, Samuelson and Abril, 2018). The present study is based on
assessment of given business case study of Julio, Carolyn and Trisha. Study will cover
appropriate legal provision and case studies to resolve the concern business issues. The study
covers, business structure, status of parties involved in business, their individual and joint
liabilities and recommendations for further improvement.
PART 1
Business structure
A partnership is considered as a group of individuals who run a business and share profit and
loss among themselves. For instance, if a person and its friend or family member makes
decision on establishing a business, then it will be considered as a partnership structure. The
concept is believed by James LJ in Smith v Anderson (1880) 15 Ch D 247 at 273 in a way
that a general partnership means a partnership where there is composition of individual
operating together by agreement among themselves to run a business together for a mutually
decided period of time, and it is generally compiled of individuals truly entering into
agreement with each other (Partnership, 2018). In the cited case, the partners are running a
business structure of partnership, wherein Julio, Carolyn and Trisha are the real partners and
they made a decision to enter into an agreement and share equal amount of profit and loss
amongst them. The partners distribute revenue, losses, business control and ownership. For
the existence of partnership, it is not vital to form a written agreement, but emergency or
situations it must be formed to show the viable, true and actual existence.
An agreement of partnership must show how profit and loss will be shared between the
partners and the ways by which there will be control over the business. Further, a partnership
agreement can assist in avoiding any confusions, conflicts and misunderstandings regarding
the facts which every partner bring into the structure of partnership and what they are allowed
to obtain from the business revenue (Carr, 2016). This is predominantly significant for the tax
entitlement or purposes if income or losses are not shared between partners on an equal and
fair basis. The partners who entered into a partnership are not considered as employees, but
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they can recruit employees under them. Furthermore, the structure of partnership is also not a
separate entity, and not similar as a sole trader, in this structure all the partners are
responsible for the business debts and due amounts.
This is also proved by the case reading of James LJ in Smith v Anderson (1880). As per this
case Julio, Carolyn and Trisha decide to bind together for working for common objective by
sharing profit and losses.
Status of participants
As to provide with any individual related in the business with partnership is said to be a
partners, and the guidance on the same is held under the in s.6 of the Act, and various rules
are provided alongside. The most general rules are described as below:
 Joint ownership: According to the Rule 1 - s.6(1) it is given that there should be
presence of joint-ownership. This is easy to understand but the only fact is that
individuals might be joint-tenants or having an ownership not solely forms a
partnership (Elliott and Varuhas, 2017). Classically, each and every rule must be
satisfied to enter into an actual partnership.
 Participation in gross returns: On a general basis, partners must distribute gross-
returns in accordance with their agreed share within the business. Hence, in a situation
where individuals distribute the gross-returns, then it would be real to say the
existence of partnership on fair basis (Partnership, 2018). On the other hand, the same
has been complicated by rule 2- s.6 (2), it states that the mere distribution of gross
returns will not form a partnership. Regardless of all these facts, distributing gross-
returns is a powerful sign of a partnership, especially when there is prescription of a
set of percentage within the agreement.
 Profit distribution: In accordance with the Rule 3- s 6(3), it is been provided that the
distribution of profits is prima facie evident that there is existence of partnership. On
the other hand, it is not sated as definite. There are two instances cited in which an
individual is entitled to a share but it was not stated as partners in which the same
individuals is a creditor or by virtue of s.6(3)(b) in which the distribution of profits is
just compensation or wage. As noted in the instance, under s.28 (6) it is stated that
however partners are permitted to remuneration and hence they gain remuneration on
the basis of prima facie, they might be difference by the contract of partnership
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