Case Study on Equity & Trust: Partnership Dispute and Business Sale

This assignment analyzes a case involving Banco and Eric's business venture, focusing on equity and trust principles within a partnership context. The case examines the formation of the partnership, the absence of a formal agreement, and the implications of Eric's sale of the business without Banco's knowledge. The analysis covers relevant Australian partnership law, including the Partnership Act 1895, types of partnerships, methods of dissolution, and the rights and liabilities of partners. The assignment explores two scenarios: Banco's acceptance and challenge of the business sale, outlining the potential outcomes regarding financial distributions, liabilities to other parties (Brad), and the admission of new partners. The conclusion summarizes the key takeaways and the potential legal challenges Banco can pursue, emphasizing the impact of his decision on his share of the business and his liabilities.

Assignment on Equity & Trust
Introduction
The case relates to Banco and Eric who had a business venture together in the Gold coast
suburb of Parklands for making and selling sneads. The business was started in 2012 and was
initially funded by Banco’s dead to the tune of $ 10,000. Banco’s garage was used for
manufacturing the sneads.
As business grew, the venture moved to commercial premises in Molendinar in Jan, 2014.
The company has an annual turnover of $5.5 Million along with 15 employees which cost $
1.9 Million. Each partner were entitles to 50% of profits of the company. Further, each
partner was paid wages of $ 23000 per month.
The lease at Molendinar is with Eric dad and is very highly priced and the same has never
been formalised with a lawyer. Further, the arrangement of lease encompass the venture
paying out in addition to rent, government charges and other cost for running of premises.
The business also provides funds on weekly basis to Banco’s wife XU @ $ 8700 per week
and has confirmed this payment to bank. In addition to above, Banco has taken a loan from
Eric running to $ 20,000 and that loan was indirectly transferred to Brad to the tune of $
18,000.
The business venture broke out in March, 2020 and the business was sold by Eric without
knowledge of Banco for $ 15 Million and the new owners took over the business on April 1.
Based on above deliberations and history, Banco wishes to understand his liabilities and
expectation in equity under the venture.
Analysis
Partnership formation Law
Under Australian law, partnership is governed by Partnership Act, 1895 and is defined as
relationship between persons encompassing individuals who carry on the business in
common with a view to profit. There are two types of partnership prevalent in Australia
namely general partnership and limited partnership. A general partnership is a type of
partnership under which the liability of partners are unlimited i.e. their personal assets may be
attached for the debts and obligations of the company. On the other hand, under a limited
partnership, the liability of partners are limited to the capital contributed.
Further, the Partnership Act, 1895 promulgates for partnership agreement in writing defining
the roles and responsibilities of each partner, contribution of each partner, procedure as to
how the decisions in a company shall be made, procedure for resolving disputes between
partners and procedure for dissolving the business. It has also been stated that in case there is
no formal agreement between partner it shall be deemed that each partner has equal rights
and liabilities.
Case
In the current case, venture is relationship between Banco and Eric and is done with a view to
earn profit and thus may be classified as partnership. Further, the Case facts are silent

regarding the partnership agreement, hence it may be assumed that there is no agreement in
place, thus liabilities of each partner is unlimited and the share of profit is equal among the
partners to the business. Accordingly, liability and rights of Banco and Eric is 50% each.
Further, Xu, wife of Banco may not be categorised as partner as there is no relationship or
any motive to earn profit. She has just been receiving the profits of the company on behalf of
his husband and may not be deem to be a partner in the business of Banco and Eric. (Fletcher
Law.com, 2020)
Methods to dissolve a business
Under the Australian Partnership Act, 1895 partnership may be dissolved by various means
namely:
(a) In terms of agreement;
(b) By giving a written notice form one partner to another;
(c) One or other partner may not legally own the business;
(d) Court issues order to dissolve the business;
(e) Partner becomes bankrupt;
(f) One of the partner dies;
(g) Business is bankrupt or insolvent
In the current case, since none of the above events have taken place the agreement may not be
seem to be dissolved and the transaction of sale of business of the company may be put to
challenge. However, if it is proved that Eric used to take major decisions of the business and
no consultation of Banco was not required, the sale may not be bought to question. Thus, one
needs to understand the functionality of the business and if each partner has equal say, the
sale shall be deemed illegal unless Banco settles to the same. (Masters, 2020) Thus, Banco
has the right to challenge the business transfer and same may be won by Banco as the said
transaction is not legally enforceable in the eyes of law. Further, the share of Eric may be
disposed off in the business but the new partner entering the business in place of Eric shall
not be entitled to participate in business and may be eligible for only profit and losses of
business. (Commonwealth of Australia, 2020)
Rights and Liabilities if business sale is not challenged
If Banco, agrees to the sale of business, the business sale may be legally enforceable and thus
the receipts from the sales of business may be legally distributed among the partners post
meeting any liabilities. In the concerned case assuming that there is no liability, the entire
proceeds of 15 Million dollar may be distributed among partners equally. Further, the liability
of Brad may be shared between the partners equally as the liability of Brad is a business
liability and not liability that shall be attributed to Banco. Thus, each partner shall receive
50% of 15 Million dollar less Brad liability of $ 18,000.
Further, transaction between Banco and Eric is a personal transaction and not a transaction
with the partnership, thus the same may be settled differently among themselves. Further,
mail back up among partners may serve as evidence but not a concrete evidence for enforcing
the contract between partners. On basis of above, it may be inferred that share of Banco in the
current case shall be $ 15 Million less $9000 subject to other expenditure of business like
employee payroll and other which has not been duly stated in the case facts.

Rights and Liabilities if business sale is challenged
The said transaction may be challenged and his share sale may be retained by him. Further, a
new partner shall enter the business as Eric sale of 50% may be allowed under the law. Also,
Banco shall be liable to Eric for $ 20,000. However, mail back up among partners may serve
as evidence but not a concrete evidence for enforcing the contract between partners. Thus, the
following liability of Banco shall arise when sale is challenged:
Liability to Eric: 20000
Liability to Brad: 9000 (being partnership share liability)
Conclusion
On basis of above, it may be inferred that present sale by Eric may be challenged in court of
law and the said sale shall be restricted to 50% only. Further, the new partner admitted shall
not be entitled to take part in the business of the company and Banco shall have different
rights and liabilities under two different situation. Situation 1 states of his acceptance of deal
and situation two speaks of non-acceptance.

References
Commonwealth of Australia. (2020, April 20). Dissolve your business partnerships. Retrieved from
www.business.gov.au:
https://www.business.gov.au/Change-and-growth/Restructuring/Dissolve-your-business-
partnerships
Fletcher Law.com. (2020, April 20). Conducting business as a partnership. Retrieved from
fletcherlaw.com.au: https://fletcherlaw.com.au/2018/03/conducting-business-as-a-
partnership/
Masters, T. (2020, April 20). Can Your Business Partner Sell Without Your Consent? Retrieved from
mallbusiness.chron.com: https://smallbusiness.chron.com/can-business-partner-sell-
consent-74489.html