Corporation Law Assignment: Partnership Relationships Analysis

This report analyzes a corporation law assignment concerning a partnership between Rose, Mary, Violet, and Sonny. The central issue revolves around determining whether a partnership exists between these individuals and the resulting liabilities. The report examines the legal definition of a partnership, focusing on key elements such as agreements, profit sharing, and agency relationships, referencing the Partnership Act 1963 (Cth) and relevant case law. The analysis addresses the roles of Violet and Sonny, evaluating whether their financial contributions and agreements with Rose and Mary establish them as partners, and the impact on their liabilities. The report considers the implications of Violet's loan agreement, which includes profit sharing but explicitly denies partnership status, and Sonny's employee status. The report examines the application of legal principles to determine the extent of the bank's claims against each party, ultimately clarifying the legal relationships and responsibilities within the scenario.

Running head: CORPORATION LAW
Corporation Law
Name of the Student
Name of the University
Author Note

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Partnership business is a structure of business, which is carried out by more than one
person. In this kind of business, the business operations are to be handled by several persons.
In Australia there are several definitions of the term partnership that has been provided by the
several legislations existing in different states as well as the territory. However, the
definitions that has been provided, points towards certain important elements that a business
structure should satisfy for the purpose of being rendered a partnership. The first condition, in
this regard, is a valid agreement that exists between more than one persons. This agreement
needs to have the status of a valid contract with all the elements for the formation of a valid
contract being present. The agreement is required to have the effect of enabling the persons
involved in the business structure to carry out transactions relating to business. The second
essential that is required for the purpose of formation of a partnership business structure is the
existence of two or more persons who are involved in the operations of the business. These
persons are known as the partners of the business. However, in this regard, it can be stated
that a two persons or more persons resolve a contract between themselves for the purpose of
carrying out transactions for the rendering of that structure as a partnership will not suffice, if
only the agreement and the presence of two or more persons can be made evident. This will
more constitute a joint venture than a partnership. For the purpose of rendering a structure of
similar nature to be a partnership, their needs to be an establishment of the mutual rights
belonging to the partners that has been laid down in agreement affecting the partnership.
Another important factor that would required to ensured in a business structure to be
considered a partnership, is the agency relationship with partners and the partnership firm.
All the partners are bound by an agency relationship towards the other partners and the firm
itself. In this furtherance, it can be stated that any transaction that each partner enter into on
behalf of the firm will be treated as a liability of all the partners as well as of the firm.
Another aspect that needs to be satisfied for the purpose of creating a partnership is the

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motive of yielding profit from the business. The relationship between the partners and
partnership firm in the territory of Australia is regulated by the Partnership Act 1963 (Cth)1.
Issue
In the present situation, the arrangement between Mary, Violet, Sonny and Rose has raised
questions regarding the relationship that exists between them. In this regard, the first thing
that is required to be assessed is the presence of any relationship of partnership between
them. In case the partnership relationship can be established, it will make Mary, Violet,
Sonny and Rose responsible towards the third party with respect to the transactions that has
been entered into by any of them. The issue arising from the present situation is whether a
partnership relationship is in force between Mary, Violet, Sonny and Rose. In proceeding
with the same the mention of all the relevant legislations needs to be made and the facts of
the scenario will be applied to those legislations for the purpose of arriving at a conclusion.
Creation of the Partnership
For the purpose of determining the right of the Bank against the partners, it needs to be
assessed, whether all of Mary, Violet, Sonny and Rose can be said to be the partners of the
partnership firm. In this furtherance, the first thing that is required is the assessment of the
existence of the relationship of partnership between these four friends for the purpose of
being constituted to have continuing a partnership business. In this respect, the definition that
has evolved with time, by the court’s decision is a venture that has been entered into between
two or more persons with the aim to continue business operations with the objective of
earning profit can be construed as a partnership business, if the same has conferred upon the
partners mutual rights and obligations with respect to the partnership firm. This can be
explained with the case of Trimble v Goldberg [1906] AC 4942. In this regard, the most
1 The Partnership Act 1963 (Cth).
2 Trimble v Goldberg [1906] AC 494

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important aspect that needs to be ensured is the mutual participation with respect to all the
partners belonging to the firm. The same can be illustrated with the case of Ballantyne v
Raphael (1889) 15 VLR 5383. For the purpose of rendering a venture to be a partnership,
three things are required to be ensured a mutual relationship, the running of a business
operation and the purpose of earning profit. The Corporations Act 2001 (Cth)4, however,
needs the number of partners to be limited. Another liability that accrues with the formation
of a partnership is the agency relationship that exist between the partners and the firm. This
can be illustrated with the case of Ford v Comber (1890) 16 VLR 5415. The definition of
partnership has been provided under section 6 of the Partnership Act 1963 (Cth)6. Owing to
this section, a relationship that arises among different persons, who are having a common
objective and the objective is the earning of profit is required to be construed as a partnership.
Position of Rose and Mary
In the present situation, the Busy Bee Florist Shop has been created between Mary and
Rose as a partnership business. This means that Rose and Mary are bound by an agency
relationship towards themselves and the firm itself. In this furtherance, it can be stated that
any transaction that each of them enter into on behalf of the firm will be treated as a liability
of both of them as well as of the firm. There has been certain unfavourable conditions that
has treated the business of the firm with some financial distress. These made Rose and Mary
to avail loans from the Friendly Bank. This loan will the responsibility both Rose as well as
Mary as they has been in a partnership, which requires them to share both the liabilities and
the profits equally. For the repayment of the same Rose has contacted Violet for a loan to
extended in exchange of a share in the partnership and Mary has asked Sony who was their
employee for a loan in return of a portion of the profit. After availing the same, both Rose
3 Ballantyne v Raphael (1889) 15 VLR 538
4 The Corporations Act 2001 (Cth)
5 Ford v Comber (1890) 16 VLR 541
6 The Partnership Act 1963 (Cth), s. 6

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and Mary has anticipated the utter failure of the business and left for a vacation. They
conveyed the information to the bank that they have availed the loan from Violet and Sonny,
who has extended the loan as their position as a partner. The issue that arises in this
furtherance is whether Sonny and Violet has achieved the status of a partner and can be made
liable to the bank with respect to the loan.
Violet
Rose has entered into an agreement with Violet for the purpose of availing a loan
amounting to $20000. There are certain conditions, which has been laid down in the
agreement and duly signed before the extending of the loan. The first thing, in this regard
would entitle Violet with the right to share of profit amounting to 20%. She has also agreed to
share the same amount of losses. This can be treated as a satisfaction of the first element that
is required to be present in case of partnership. This element states that they must be
agreement for the purpose of earning profit and that profit needs to be distributed between the
partners in accordance with the agreement. This can further be supported with the case of
United Dominions Corporation Ltd v Brian Pty Ltd and others (1985) 157 CLR 17. Hence,
in this case Violet has satisfy the first element of the partnership.
The second condition that has been provided in the agreement is that Violet will not be
considered as a partner in the business. This can be analysed with case of Keith Spicer Ltd v
Mansell [1970] 1 All ER 4628. In this case, it has been held that even if there is an express
statement rendering a person not to be a partner, there can exist a partnership if there is an
implied satisfaction of all the requirements related to partnership.
For the purpose of determining a partnership, the agreement does not have to expressly
state that there exist a partnership arrangement between the parties and the satisfaction of all
7 United Dominions Corporation Ltd v Brian Pty Ltd and others (1985) 157 CLR 1
8 Keith Spicer Ltd v Mansell [1970] 1 All ER 462

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the elements of the partnership is enough to consider an arrangement to be a partnership. In
this regard, it can be said that the existence of a partnership lies in the intention of the parties
to create a partnership relationship and not the express words that contradict the existence of
a partnership. This can be illustrated with the case of Cox v Hickman (1880) 8 HL Cas 2689.
For the purpose of determining the existence of a partnership, the first thing that a person
needs to analyse is the intention of sharing the profits and losses that accrues to the business.
The profit sharing relationship is the main essential element that is required to be present for
the purpose of rendering a venture to be a partnership. This can further be explained with the
case of Stekel v Ellice [1973] 1 WLR 19110.
In the present case, it can be stated that although Violet has expressly refrained from being
a partner in that partnership firm, would be treated as a partner as she has been sharing profit,
she has a mutual agreement and has the right to enquire about the books of accounts. All
these direct towards her being a partner in the partnership firm. Hence, she will be regarded
as a partner and will be bound by all the transactions that has been entered into by the
partnership firm.
Sonny
Any agreement that has been entered into by an employee or an agent of a firm for the
purpose of sharing the profits and the losses belonging to the farm for the extension of
remuneration will not render the arrangement to be a partnership and the employee or the
agent will not be regarded as a partner. This has been provided for in the section 7 of the
Partnership Act 1963 (Cth)11. Under this section, it has also been stated that if such a person
has extended a loan with respect to a interest that he is required to be extended to from the
share of profit will not consider that person to be a partner in relation to that form
9 Cox v Hickman (1880) 8 HL Cas 268
10 Stekel v Ellice [1973] 1 WLR 191
11 The Partnership Act 1963 (Cth), s. 7

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In the present scenario, Sonny, being an employee of the firm, has extended a loan of
$10000 on the request of Mary. The loan contract has stated that she will be availing a share
in the profit of the company. This does not make her a partner for the purpose of section 7 of
the Partnership Act 1963 (Cth) as its renders that mere sharing of profit does not constitute a
person to be a partner. This can further be explained with the case of Commissioners of
Inland Revenue v Lebus.
It has been held in Adam v Newbigging (1888) 13 App Cas 30812, that only advancing
money for interest will not constitute a person to be a partner, even if that interest is to be
borne by the profits of the firm or even if the person extending the loan has agreed to share
the losses. He will not be regarded as the partner. For the formation of the partnership, all the
elements of the partnership will be required to be satisfied. Unless all the elements of the
partnership has been satisfied the mere sharing of loss and profit will not be construed as a
relationship of partnership. Hence, Sony will not be regarded as a partner in the partnership
firm.
Conclusion
Hence, it can be concluded that Violet will be regarded as a partner and will be bound by
all the transactions that has been entered into by the partnership firm but Sony will not be
regarded as a partner in the partnership firm.
12 Adam v Newbigging (1888) 13 App Cas 308

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Reference
Adam v Newbigging (1888) 13 App Cas 308
Ballantyne v Raphael (1889) 15 VLR 538
Cox v Hickman (1880) 8 HL Cas 268
Ford v Comber (1890) 16 VLR 541
Keith Spicer Ltd v Mansell [1970] 1 All ER 462
Stekel v Ellice [1973] 1 WLR 191
The Corporations Act 2001 (Cth)
The Partnership Act 1963 (Cth)
Trimble v Goldberg [1906] AC 494
United Dominions Corporation Ltd v Brian Pty Ltd and others (1985) 157 CLR 1