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Partnership Liability: Analysis of Violet and Sonny's Status

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Added on  2020-03-16

Partnership Liability: Analysis of Violet and Sonny's Status

   Added on 2020-03-16

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Running Head: Law 1Law
Partnership Liability: Analysis of Violet and Sonny's Status_1
Law2Issue:Whether Violet and Sunny can be considered as partners of Busy Bee Florist shop, and whether they were liable towards the Friendly Bank in respect of loan taken by busy bee?Law:Section 6 of the Partnership Act 1963 states the meaning of partnership. As per this section, partnership is considered as relation between the people who decided to carry on common business for the purpose of earning profit, and it also includes an incorporated limited partnership. It must be noted that, partnership also includes external partnership. This section further states that any relationship between the members of the company, whether form as per the Act or not does not consider partnership under this Act (Partnership Act, 1963). In other words, partnership is considered as relationship in which two persons enter for carrying on a business with a view to earn profit. Partnership is created through agreement which is signed by two or more parties for the purpose of creating legally binding relationship which mustbe contractual in nature. This can be understood through case law Green v Beesley (1835) 2 Bing N C 108 at 112. In this case, Tindal CJ stated that partnership was considered as mutual participation and it was necessary that participants must not create legal entity when they create partnership. There was one more case Smith v Anderson (1880) 15 Ch D 247 at 273, in which James LJ stated following concept:Ordinary partnership was considered as partnership which includes definite individuals which were bound together through contract for the purpose of combined for joint object either for indefinite period or limited time. Partnership generally composed those persons who were originally entered into contract with each other. It must be noted that law imposed limitation on number of partners under single partnership, and partnership must be registered under partnership Act. Law of partnership is derived from both case law and statute law, and for this relevant legislation is Partnership Act 1963. It must be noted that partnership is also considered as special type of agency and the main reason behind this is that when partners in the firm carrying on business under partnership, and then they act like agents for each other. This can be understood through case law Lang v James Morrison & Co Ltd (1911) 13 CLR 1 at 11.Section 7 of Partnership Act 1963 states rules for determining the existence of partnership. Clause 1 of this section state, for determining the existence of partnership Court must consider clause 2 to clause 4 of this section. Clause 2 of this section states, joint tenancy, any common tenancy, property in joint, and part ownership does create any partnership itself just for anything held and owned. For determining partnership, court considers whether tenants or owners share profit which is earned thorough
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Law3using these things held and owned or not. In other words, holding any property jointly as co-owners does not create any partnership, and this can be understood through case law Davis v Davis [1894] 1 Ch 393. In this case, Court determines the partnership relationship when two brothers hold the real estate property as tenants in common. In this case, father of the brother’s left his business and three houses too his sons as joint owners. One of the houses had been let to tenants and other two houses were used in business which was carried by two brothers. For business brothers borrowed loan by giving security of the houses and both receives weekly expenses from the business. In this case, Court stated that partnership exists for the purpose of carrying on business and both the houses were considered as property of partnership. Clause 3 of this section states, sharing of profit or gross returns does not create any partnership and for determining the existence of partnership it is considered whether sharing of returns or interest have or have not any common right and interest in the property from which such profit orreturn have been earned. This can be understood through case law Cribb v Korn (1911) 12 CLR 205. In this case, korn was employed as worker by the owner of the land. High Court stated that no partnership exists in this case it was just a tenancy. This was because landowner possesses exclusive right to occupy the land and Cribb does not own any right to direct the actions of landowner while working on the land. Therefore, no partnership exists it’s just a tenancy. However, sharing of gross returns cannot be considered as enough to establish a partnership but merely constituted rent. Clause 4 of this section state, if person receives any share of profit from partnership business then it is considered as primary evidence that person is partner with respect to any business, but receipt of such share or profit or changes in the profit of the business does not itself create personpartner in respect of partnership business. These payment or share does not make person as partner in the firm:(a)Person is not considered as partner of the business if such person receipts any amount of debt or any other liquidated demand through installments or otherwise from the accruing profits and such receipt of payment not makes the person liable as partner in context of partnership business.(b)Contract related to the agent or employee’s remuneration of the person who is engaged inthe business by sharing profits of the business does not make such employee or agent partner in the firm and also not makes the person liable as partner in context of partnership business.(c)Any domestic partner or child of deceased partner who receives share in the profit of the partnership business in the way of periodic payments is not considered as partner in the business just because they receive share in the profit. Such domestic partner and child of deceased partner are not liable as partner in context of partnership business.(d)Lending of money to a person who is engaged or about to engage in the business under a contract which is made in writing with that person and such contract is signed by all the parties of the contract in respect of which lender has right to receive interest rate or any
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