Partnership Law Assignment: Business Structure and Liability

This document presents a comprehensive solution to a partnership law assignment, addressing key legal questions regarding a business venture involving Kai, Sen, Luc, and Mitsi. The assignment delves into the implications of operating a business without a formal legal structure, analyzing the potential ambiguities surrounding liability and the rights of involved parties. It examines whether a partnership has been formed in the absence of a written agreement, considering the essential elements required for partnership recognition under the Partnership Act 1963 (Cth). Furthermore, the solution explores the most appropriate business structure for the individuals, weighing the advantages and disadvantages of a partnership versus forming a company, particularly in relation to personal liability for business debts. The assignment utilizes relevant case law and statutory provisions to support its arguments and conclusions, providing a detailed analysis of the legal principles governing partnerships and business structures.

Running head: PARTNERSHIP LAW
Partnership Law
Name of the Student
Name of the University
Author Note

1PARTNERSHIP LAW
Question 1
Issue
Whether the idea of carrying out a business without discussing the legal arrangement existing
between Kai, Sen, Luc and Mitsi would be a good idea.
Rule
The definition of the term partnership has been provided u/s 6 of the Partnership Act 1963
(Cth) (PA). The definition of the word partnership can be best understood under the light of
the principles established in the case of Green v Beesley (1835) 2 Bing N C 108. As
per the provisions contained under the section any relationship existing between people
running a business in a common capacity with the sole motive of earning profit depicts the
relationship of partnership. As per the provisions contained u/s 9 of the PA, the partners
pertaining to a firm conferred with the power to bind the firm by their actions taken under the
name of the firm. A partner of a firm is to be designated as an agent of that firm and has the
capacity of carrying out business and the name of the firm. The actions that any partner
pertaining to the firm adopts in the furtherance of discharging his power as a partner would
bind the firm as well as other partners to that action. However, this liability can only be
evaded when the partner does not have the authority to act in such a manner and the person
dealing with such a partner has the knowledge or belief of such an excess of authority being
exercised. This can be best explained with the principles established in the case of Smith v
Anderson (1880) 15 Ch D 247.
Application
In the given scenario, Kai, Sen, Luc and Mitsi were engaged in the offering of several
consultancy services towards small business clients. Kai and Sen were engaged in helping

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clients with obtaining finances for the purpose of growing the businesses. Luc was rendering
services to clients with solvency problems and has a wish to be registered as a liquidator.
Mitsi has been involves in the selling of marketing services to the clients. This arrangement
has been financed with $20,000 for the purpose of initial setup and has been contributed by
all of them. They were also sharing a rented premise for the business venture and the lease
agreement has contain the signature of all of them. However, they have chosen separate
names for the business they have been carrying out but no registration has been made. The
have not made decision regarding the legal arrangements that they desire to pursue in this
case. This would incur a probability of creating an ambiguity regarding the liability that will
be incurred in case of any liability being incurred by the business. Moreover, the rights of the
parties involved in a business structure will not be available until and unless a proper
business structure has been decided upon. Moreover, the claims of the third parties against
the business will be difficult to be ascertained in case of an absence of a legal structure.
Conclusion
The idea of carrying out a business without discussing the legal arrangement existing
between Kai, Sen, Luc and Mitsi would not be a good idea.
Question 2
Issue
Whether in the absence of any agreement with respect to the same, a partnership has been
formed between Kai, Sen, Luc and Mitsi.
Rule
The definition of the term partnership has been provided u/s 6 of the Partnership Act 1963
(Cth) (PA). The definition of the word partnership can be best understood under the light of

3PARTNERSHIP LAW
the principles established in the case of Ballantyne v Raphael (1889) 15 VLR 538.
As per the provisions contained under the section any relationship existing between people
running a business in a common capacity with the sole motive of earning profit depicts the
relationship of partnership. For the purpose of determining the existence of relationship of
partnership, three essential elements are required to be present. Firstly, there needs to be a
business as has been pointed out with the case of Ford v Comber (1890) 16 VLR 541.
Secondly, the business needs to be carried out in a common capacity as can be explained with
the case of Lang v James Morrison & Co Ltd (1912) 13 CLR 1. Lastly, there
needs to be a profit making motive behind all the endeavours of a business for the purpose of
being rendered as a partnership business as can be illustrated with the case of Wise v
Perpetual Trustee Co Ltd [1903] AC 139. The presence of these essential elements
establishes a business status as a partnership business irrespective of any agreement being
created between the individuals involved. This can be explained with the case of Bond
Corporation Holdings Ltd & Anor v Grace Bros Holdings Ltd & Ors
(1983) 1 ACLC 1009.
Application
In the given scenario, Kai, Sen, Luc and Mitsi were engaged in the offering of several
consultancy services towards small business clients. Kai and Sen were engaged in helping
clients with obtaining finances for the purpose of growing the businesses. Luc was rendering
services to clients with solvency problems and has a wish to be registered as a liquidator.
Mitsi has been involves in the selling of marketing services to the clients. This arrangement
has been financed with $20,000 for the purpose of initial setup and has been contributed by
all of them. They were also sharing a rented premise for the business venture and the lease
agreement has contain the signature of all of them. However, they have chosen separate
names for the business they have been carrying out but no registration has been made. The

4PARTNERSHIP LAW
have not made decision regarding the legal arrangements that they desire to pursue in this
case. They have been carrying on a business in this present scenario and satisfying the first
element of a partnership. All of them has been carrying on a business under a common rented
premises, which has been taken on lease by all of them. This satisfies the second element of
partnership. All the endeavours were within intention of earning profit. Hence, all the
elements of partnership has been satisfied which would render the arrangement to be
partnership irrespective of any formal agreement between the parties. This can be explained
with the case of Bond Corporation Holdings Ltd & Anor v Grace Bros
Holdings Ltd & Ors (1983) 1 ACLC 1009.
Conclusion
In the absence of any agreement with respect to the same, a partnership has been formed
between Kai, Sen, Luc and Mitsi.
Question 3
Issue
What structure of business would be appropriate for Kai, Sen, Luc and Mitsi if they want to
establish their business as a partnership.
Rule
As per the provision contained u/s 13 of the PA all the partners in a firm have the liability in a
joint capacity for all the liabilities arising out of the business of the firm. The partners of a
firm are liable in a personal capacity for the liabilities arising out of the business of the firm.
On the other hand, companies are treated as separate entity in a legal capacity and the owners
of the managers of the same are not to be rendered liable for the liabilities of the company.
The owners or the managers of the company acting on behalf of the company are immune

5PARTNERSHIP LAW
from being held liable for the liabilities of the company. This can be illustrated with the case
of Salomon v A Salomon & Co Ltd [1896] UKHL 1.
Application
In the present situation, Kai, Sen, Luc and Mitsi were carrying out a partnership business.
This would have the risk of accrue liability to them for the liabilities of the company. This
can only be remedied by forming a company. This is because the formation of a company
will provide them within immunity from being held liable in a personal capacity for the
liabilities of the company.
Conclusion
The structure of business that would be appropriate for Kai, Sen, Luc and Mitsi if they want
to establish their business as a partnership is to form a company.

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Reference
Ballantyne v Raphael (1889) 15 VLR 538
Bond Corporation Holdings Ltd & Anor v Grace Bros Holdings Ltd & Ors
(1983) 1 ACLC 1009
Ford v Comber (1890) 16 VLR 541
Green v Beesley (1835) 2 Bing N C 108
Lang v James Morrison & Co Ltd (1912) 13 CLR 1
Salomon v A Salomon & Co Ltd [1896] UKHL 1
Smith v Anderson (1880) 15 Ch D 247
The Partnership Act 1963 (Cth)
Wise v Perpetual Trustee Co Ltd [1903] AC 139