Corporations Law LLW2004 Assignment: Partnership and Loan Analysis

This report analyzes a Corporations Law assignment focusing on the formation and implications of a partnership. The scenario involves Rose, Mary, Violet, and Sonny, and their roles in the Busy Bee Florist Shop. The report examines the application of the Partnership Act 1958 (Vic) to determine if a partnership exists, particularly concerning Violet and Sonny's involvement through loan agreements. It explores the legal definitions of partnership, the requirements for its formation, and the implications of profit-sharing, control over business operations, and liabilities. The report also considers the legal precedents and relevant sections of the Act to assess the status of Violet and Sonny as partners, even if there was no explicit intention to form a partnership. It concludes with a detailed analysis of each party's liabilities based on their agreements and actions within the business context.

Running head: CORPORATIONS LAW
Corporations Law
Name of the Student
Name of the University
Author Note

1CORPORATIONS LAW
Partnership indicates a business structure that has been established for the purpose of
exhibiting the business operations. In case of carrying out business function partnership is
similar to the other forms of business structures such as companies, sole proprietorship and
other forms of business. In the territory of Australia, there are several definitions relating to
partnership. It has been defined in several legislation that are existed in the territory of
Australia. Australia has several partnership legislations prevailing and governing the
partnership business in different states. However, the state of Victoria has a legislation
governing partnership applicable to the relationship of partnership in that statement. The
Partnership Act 1958 (Vic)1 is the legislation that governs any partnership business prevailing
in Victoria. All these legislations and definitions points out towards certain basics the
required to be contained in a partnership business to be rendered as partnership. For instance,
partnership is required to be carried out on the basis of an agreement between the partners.
This agreement should have the status of a valid contract and should be consisting of all the
elements that are required to form a valid contract. Another chief requirement for the
formation of a partnership is the presence of two or more individuals who has the intention of
running a common business and has been initiated their relationship as partners by way of a
valid contract. In this regard, the partners are treated as parties to the contract of partnership.
Moreover, a partnership should always be created for the purpose of earning profit. The last
requirement of a partnership to exist is the agency relationship that has been created between
the partners by the of the contract of partnership.
Issue
The most important issue that can be identified from the present scenario is whether there
exist any partnership relationship between Mary, Rose, Violet and Sonny u/s 5 of the
Partnership Act 1958 (Vic)2. The determination of this issue is required for the purpose of
1 The Partnership Act 1958 (Vic)
2 The Partnership Act 1958 (Vic), s. 5

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determining the status of Mary, Rose, Violate and Sonny in the given situation. For the
determination of status under the relationship of partnership, the application of all the
elements belonging to the partnership will be applied to the given set of situations u/s 6 of the
Partnership Act 1958 (Vic)3.
Rule
In one of the definition provided by the courts with respect to the relationship of
partnership is that it is an association that has been formed between individuals who are
involved in the activity of business and the chief intention of the indulging into such
relationship and carrying out the business operations is the generation of profit. For the
formation of a partnership the institution of a contract needs to be established between the
parties for effecting such a relationship and this contract needs to have the legally binding
force and contractual nature. Even if no legal relation has been created, the partnership can be
formed, if there is an existence of a participation, which is mutually contributed. This can be
illustrated with the case of Kendall v. Hamilton, 4 App. Cas. 504, 544 (1879)4. It has been
held in the case of Elkin & Co Pty Ltd v Specialised Television Installations Pty Ltd [1961]
SR (NSW) 1655, that the most important requirement of a partnership is the existence of two
or more partners and a business operation carried out for the main aim of generating profit
and distributing the same in accordance with the agreement. The relationship between the
partners is required to be mutual while carrying out the business under the name of the
partnership and each of the partners shows a fiduciary relationship with the other partners as
well as with the partnership form as has been provided under section 13 of the Act6. This
comes in line with the case of Ex parte Board of Trade (1890) 60 LJQB 2357. The Partnership
3 The Partnership Act 1958 (Vic), s. 6
4 Kendall v. Hamilton, 4 App. Cas. 504, 544 (1879)
5 Elkin & Co Pty Ltd v Specialised Television Installations Pty Ltd [1961] SR (NSW) 165
6 The Partnership Act 1958 (Vic), s. 13
7 Ex parte Board of Trade (1890) 60 LJQB 235

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Act 1958 (Vic) limits the number of partners that a business venture termed as a partnership
needs to have. Section 5 belonging to the Act8, define the term partnership as any relationship
that exists between individuals having common objective of generating profit. It requires the
business to run mutually and in a common manner where are all the partners have been
participating in the business of the form and has been conducting there responsibilities under
the name of the business.
It has been contended by the courts that even if the parties to the agreement never intended
to form a partnership, however the implied nature of their actions in the furtherance of the
venture has made it inevitable to be construed as a partnership. Moreover, the distribution of
profit in a particular percentage or equally has pointed towards the existence of a partnership.
It can also be analysed with the case of Bond Corporation Holdings Ltd & Anor v Grace Bros
Holdings Ltd & Ors (1983) 1 ACLC 10099 , where court has contended that even if the
contract expressly states a person to be not considered as a partner, the character of the
relationship when a person to be a partner of the business. This includes control over the
business participation in the business and sharing of profit and loss. It can be stated that the
existence of a partnership cannot only be assessed under the weightage given in the statute
but also with respect to the circumstances that has been existing in a particular situation.
Evidence of partnership is mainly dependent upon the profit making and profit sharing
motive and the additional control over the business of partnership. This can be explained with
the case of Stekel v Ellice [1973] 1 WLR 19110.
An employee of a business or any agent cannot be construed as a partner for the purpose
of his sharing a portion of the profit or his availing of remuneration out of the profit. This has
been provided under section 5 of the Act11. This section also makes that a person extending
8 The Partnership Act 1958 (Vic), s. 5
9 Bond Corporation Holdings Ltd & Anor v Grace Bros Holdings Ltd & Ors (1983) 1 ACLC 1009
10 Stekel v Ellice [1973] 1 WLR 191
11 The Partnership Act 1958 (Vic), s. 5

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on amount of loan towards the business and instituting in a written contract along with the
partner to be conferred with the right to avail a rate of interest that will be extended to him
out of the profits of the business will not render that particular individual as a partner
belonging to the business.
Application
The relationship between Mary, Rose Violet and Sonny is required to be analysed through the
application of elements of the partnership and by applying different legislations and
precedents to the given scenario in excruciate details.
Under this given set of circumstances, Rose and Mary has been involved in a business
venture known as Busy Bee Florist. They have been running the business as partners. This
implies that the other partners of the business and will be by bound by the actions of each
other that has been committed while conducting the business transactions under the name of
the business. There has been certain unavoidable circumstances that caused losses to the
business. This resulted in the partnership seeking for loan from the Friendly Bank and this
loan is binding upon the partners that is Rose and Mary by virtue of their partnership.
Moreover, it needs to be constituted that the losses and profits that will accrue with respect to
the business of partnership that Rose and Mary has been carrying out will be distributed in
equality as there has been no agreement created between them to that effect. Violet, a friend
of Rose has been approached by rose for the purpose of availing a loan from her and in
exchange of such a loan, Rose has made a promise to extend her with the share of profit in
the business. A contrast between Rose and Violet will be rendered as valid as being a part of
the firm, Rose has the power to enter into transactions on behalf of the firm. Again, Mary has
asked a friend namely, Sony who has also been employed in the partnership form for the
purpose of availing loan and in exchange of such alone Sony has demanded for a profit

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portion in the business. After the availing of these loans, both Mary and Rose has eloped on a
vacation keeping the business to decline. However, while going on vacation like that they
have represented Sony and violet as the partners of the business to the bank. Owing to this the
determination of the status of Sony and violet as the partners belonging to the farm is
required for the purpose of determining the liability towards the loan.
Violet has extended a loan towards Rose, who is acting on behalf of the partnership in
certain terms. The loan amount was $20,000 and Rose has created an agreement with Violet
for the purpose of the same. The first condition in the agreement requires the payment of a
share of 20% of the profit towards Violet. She also agreed to share the losses of the business
in this identical percentage. Another condition has enabled Violet to enquire into the books
belonging to the partnership containing the accounts of the business. The third condition
pertaining to the agreement between Violet and Rose has required a business statement to be
provided to violet in a quarterly manner. The last condition that has been incorporated in the
agreement is that while she has no intention of being rendered as a partner in the business of
partnership. These conditions have been documented and instrument of the agreement has
been duly signed by both Rose and Violet and the loan has been extended by Violet. For the
determination of the status of violet as a partner, the relationship existing between Rose and
Violet needs to be analysed under section 6 of the Act12. The status related to Violet for the
purpose of the partnership is to be analysed on the principle decided in the case of Keith
Spicer Ltd v Mansell [1970] 1 All ER 46213.
The situation presented in the case of violet has made it evident that while it has an intention
to share the profits and he she has also been demanding a control exercised open the business
pertaining to the form. Although she has expressly restricted her treatment as a partner, but
the analysis that has been provided by the previous precedents, has made it evident that she
12 The Partnership Act 1958 (Vic), s. 6
13 Keith Spicer Ltd v Mansell [1970] 1 All ER 462

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will be construed as a partner even if her intentions are different from the same. This is
because of the nature of the agreement that she has been instituting would render her a
partner. She will be imposed with all the liabilities that a person to a partner. Moreover, the
distribution of profit, the enquiry with respect to accounts books and the quarterly business
statement has more added to her status of being a partner. This agreement with all its
conditions and perquisites has made Violet a partner of the business.
The present circumstances has pointed towards Sonny being an employee and providing a
loan of $10,000 towards the partnership in exchange of a contract instituted along with Mary
will attract the provisions contained in section 5 of the Act14. Sony has extended the loan
towards the business of partnership for an interest rate that needs to be extended to her out of
the profits of the business. She will not be rendered as a partner as it has been held in the case
of Wiltshire v Kuenzli (1945) 63 WN 4715, that the sharing or distribution of profit among a
certain person extending loan will not indicate him to be a partner belonging to the business.
It can be made evident by the principles established in the case of Moore v Slater (1863) 2 W
& W (L) 16116 that made providing of loan without interest rate that needs to be paid out of
the share of the profit cannot constitute the creditor to be a partner in the business. Moreover,
Sony has not been availing any control of the business and this will render him to be not
partner in the firm.
Conclusion
Violet will be construed as a partner in the firm and will be held liable for the loan towards
the Bank. Sonny will not be construed as a partner in the firm and will not be held liable for
the loan towards the Bank.
14 The Partnership Act 1958 (Vic), s. 5
15 Wiltshire v Kuenzli (1945) 63 WN 47
16 Moore v Slater (1863) 2 W & W (L) 161

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Reference
Bond Corporation Holdings Ltd & Anor v Grace Bros Holdings Ltd & Ors (1983) 1 ACLC
1009
Elkin & Co Pty Ltd v Specialised Television Installations Pty Ltd [1961] SR (NSW) 165
Ex parte Board of Trade (1890) 60 LJQB 235
Keith Spicer Ltd v Mansell [1970] 1 All ER 462
Kendall v. Hamilton, 4 App. Cas. 504, 544 (1879)
Moore v Slater (1863) 2 W & W (L) 161
Stekel v Ellice [1973] 1 WLR 191
The Partnership Act 1958 (Vic)
Wiltshire v Kuenzli (1945) 63 WN 47