Company and Commercial Law: Partnership Structure, Liability for Misrepresentation, and Risk Management Options

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Company and Commercial Law

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Case 1
Issue
What is the business structure in which the business is running and the statue of each
party involved in the business?
Rule
Two or more parties can enter into an agreement to form a partnership which is a
common business structure in Australia. It is governed by the Partnership Act (Vic)
1958. Section 5 of PA describes partnership as an agreement to carry out business in
common between two or more parties whose objective is to earn a profit. There are
three key elements which form a partnership between two or more parties. Primarily,
parties should enter into an agreement to carry out a business and based on such
agreement, their responsibilities and obligations are divided as well. However, in Smith
v Anderson case, the court held that performing of an event which would not be
performed in the future could not form a partnership between parties. The business of
a partnership must be carried out by the parties in common, and they must have equal
responsibilities. Partners are not required to be active in the partnership as long as
other partners are managing its operations on their behalf. Partners must have a view
of profits, and they must manage the partnership to earn a profit. However, as per the
judgement of Cox v Hickman, parties cannot be considered as partners based on the
fact that they share its profits; the presence of other elements is necessary as well.
Application
A business for financial advice has been established by Julio, Carolyn and Trisha and
each of them is playing different part in the business. The objective of the business is
to earn profits by providing financial advice to parties. Julio, Carolyn and Trisha
manage the operations of the business, and they are mutually obligated for its
operations. Thus, they have entered into a partnership, and they are partners in the
business. Sarah only shares profits in the business but did not play any role in its

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operations. Other partners are not operating the business on behalf of Sarah as well,
thus, she is a creditor of the partnership.
Conclusion
To conclude, a partnership has formed to run the business and Julio, Carolyn and
Trisha are partners in such business. Sarah is a creditor because she did not involve in
the operations of the business.