Partnership Law and Directors' Duties in Australia

1
Contents
Solution 1....................................................................................................................................................2
Issue........................................................................................................................................................2
Law..........................................................................................................................................................2
Application..............................................................................................................................................3
Conclusion...............................................................................................................................................4
Solution 2....................................................................................................................................................4
a) The directors’ duties of care and diligence......................................................................................4
b) The directors’ duties of loyalty and good faith....................................................................................6
Reference list...............................................................................................................................................8

2
Solution 1
Issue
Whether or not the venture amid Samuel, Thomas and Peta is a partnership?
Law
The law of partnership is one the business venture which is normally carried in Australia.
As per section 1 of the Partnership Acts 1892 (NSW), a partnership is one of the simplest
methods wherein 2 or more individuals join together and carry a business with an intention
which is common and with a motive to earn. In Green v Beesley (1835) the basic nature of
partnership was elaborated. But, as per section 2, to prove a partnership amid persons few
essentials are needed which includes: (Graw 2001)
i. It is necessary that to establish a partnership there must be 2 or more persons. A
minimum of 2 and maximum 20 people are needed for partnership;
ii. The main aim to establish an association is that profit must be earned by them. Any
relationship not for profit making is not partnership and is held in Bond Corporation
Holdings Ltd & Anor v Grace Bros Holdings Ltd & Ors (1983).
iii. It is very necessary that all the persons who has join together must have common
intention to carry on the business. Common intention signifies that the intention of all
the partners to carry on the same business with same intention. It is not necessary that
all must take active part in the business but must have common intention and is held
in Keith Spicer Ltd v Mansell [1970];
iv. It is very necessary that aim of conducting the business is that it must be carried on by
the parties. The intention is not to involve in a single transactions but in a series of
transactions and is held in Elkin & Co Pty Ltd v Specialised Television Installations Pty
Ltd [1961].
All the elements together results in the formation of a partnership amid the persons.
The law is now applied to the fact of the case.

3
Application
A business dealing with internet is initiated by Samuel, Thomas and Peta. There are various
factual situations which try to settle that the relationship that exists amid them is of a partnership.
The reasons to support the same are:
i. Samuel, Thomas and Peta are the persons who are entering into a relationship. Thus,
the first requirement is met as a relationship is established amid two or more persons.
ii. The business that was established amid them was profitable. It was decided that since
Peta has invested $100,000 thus, nothing is paid for 1st year and then $6,000 per
month and termed the same as gratuity and mainly because he put his asset as a
collateral for the business. Samuel and Thomas were not paid as employees but
through consultancy arrangements with the venture.
It is submitted that though the name within which they are sharing the profits is very
different but they are sharing the profits of the business and is held in Bond
Corporation Holdings Ltd & Anor v Grace Bros Holdings Ltd & Ors. Thus, the main aim
to carry business is profit sharing. So, the second element is also employ with
iii. All the three partners were willing to carry a business over internet where they
purchase the goods from the business which are closing down and then reselling the
same with the aim to earn gain. So, all the three partners have one common intention
of buying goods and then reselling with aim to earn profits. There is a common
intention to carry on the business. All the three parties have joined hands to work
together for the business venture and thus it establishes that there is a common
intention that is prevalent.
iv. It is submitted that the intention of all the three partners is to carry on the business on
continuous basis. They agreed that they will not Peta for one month but then regularly
on monthly basis. Also, Samuel and Thomas were not paid as employees but through
consultancy arrangements with the venture. The form of dividing the profit is very
different but the aim was to divide the profits amid them in order to establish a
partnership amid them as held in Elkin & Co Pty Ltd v Specialised Television Installations
Pty Ltd.