Existence of partnership between Shaun and Craig
Does a partnership between Shaun and Craig exist?
As per section 1 of the Partnership Act 1891, a partnership is a kind of association that is established amid two or more parties with the aim to share profits by carrying out a business with common intention and includes Limited Partnership. Section 2 of the 1891 of the Act lays down the rules for determination of partnership, that is:
- presence of joint tenancy/tenancy in common/joint property/ common property/part ownership are not the criteria’s for the presence of partnership for anything so owned or held regardless of the fact that the tenants/owners share profits or not;
- if gross returns are shared then it is not the criteria for partnership;
- normally sharing of profits out of the business is a prime evidence that there is partnership;
- however, if the person receives payment against the debt or any contract for the remuneration of an agent/servant or any receipt of payment by way of annuity or any advance over the loan, etc, out of the profits of the business does not contemplate that there is partnership.
Thus these elements together constitute partnership amid the people.
It is submitted that, Shaun and Craig are friends and they start a business which offers online music lessons. They obtained ABN and registered “NetMuso” as their business name and www.netmuso.com as domain name. It is submitted that there is no partnership amid the two because:
- The operation of business from Shaun’s Mum’s garage and later at a music studio does not contemplate that there is partnership.
- The lease if the studio is entered by Shaun alone with clarification that the properly is lease out for a partnership business. also, as per section2 (1) (a), a joint tenancy also does not indicate the presence if partnership;
- Shawn borrowed $20,000 from his Dad to pay the rental bond also does not indicate partnership;
- The fees of the business is paid in the joint bank account does not establish that both Shawn and Craig has decided to share profits and thus is not the resemblance of partnership;
Thus, all the submissions establish that there is no presence of partnership amid Craig and Shawn.
For issues b-f, it is assumed that a partnerships does exist.
Can Craig leave the partnership in the way he did?
Part 2, Division 4 of the Partnership Act 1891 defines as how a partnership must be dissolved. As per section 32 of the Act if a partnership is required to be dissolved then the partner can do so:
- If the partnership is for the term then after the expiration of the time period;
- If for a single adventure, upon expiration of the adventure;
- If there is no tie period then the partners must provide notice of the intention of the dissolution. The partnership stands dissolve from the date mentioned upon the notice or from the date when the notice is communicated.
As per section 41, if the partnership is dissolved by fraud, then, the aggrieved party has the right to:
- lien over the surplus partnership assets;
- to act as the creditors and claim payments which are paid as part of the partnership liabilities;
- To be indemnified by the fraudulent person against the debts of the firm.
Since there is valid partnership amid Craig and Shawn and there is no partnership agreement that is made amid the parties, thus, the partnership must be dissolved as per section 32 of the Act. the partnership is not established for any particular time frame nor for any specific venture, thus, as per section 32 (c) of the Act, it is necessary that notice must be served by Craig to Shawn. However, there is no notice that is served. Thus, Craig cannot dissolve the partnership the way he did and thus Shawn is entitled to the rights mentioned under section 41 of the Act.
Craig cannot dissolve the partnership the way he did as the same is in violation of section 32 of the Act.
Is Craig entitled to the fees from the extra lessons he had been doing?
As per section 29 (1) of the Act, every partner must account to the firm any profit or gain that is received by him without obtaining consent from the other partners with respect to any transaction related to the partnership business or by use of partnership property. Sub section 2 submits that the obligation is applicable even after the partnership is dissolved because of death till the time there is wound up of partnership.
Dissolution of partnership
It is submitted that Shaun and Craig are partners. However, it was observed that for keeping Craig was undertaking extra lessons outside the studio and kept the fees to him. It is submitted that the income is generated out of the transactions that are related to the business. Further, there is not approval that is sought from Shawn for keeping the money.
Thus, Craig is not entitled for the extra income and must return the same to the joint account of the partnership firm.
Are the music instruments and equipment partnership property?
Section 20 (1) of the Act submits that any property or rights in the property when acquired by purchase or otherwise and is brought in the stock of the partnership for the purpose of the partnership then it is the partnership property. The property must be held by the partners and must be used by the partners for partnership purposes and is held in Commissioner of State Taxation v Cyril Henschke Pty Ltd [2010].
As per the facts Craig moved his collection of music instruments and equipment worth approximately $25,000, to the studio. Now, even thoigh the instrumebts and equipments are owned by Craig exclusively, however, as per section 20 (1) of the Act, he has brought the same in order to accomplish the purpose the partnership. Thus, the property of Craig automatically becomes the property of the partnership.
Thus, the music instruments and equipment must be considered as the partnership property.
Who is liable to pay the outstanding rent and electricity?
As per section 5 of the Act, In any partnership, the partners are considered to be the agents of the firm and are liable by the acts of the other partners and the firm. On this very basis, as per section 9 of the Act, the liability of the partners in a partnership firm is joint and severable. Thus, any debt incurred by one partner will make the other entire partner and the firm liable for the same. And is rightly held in Polkinghorne v Holland (1934)
It is submitted that Craig and Shaun are the partners in the firm. Shaun in order to carry out their partnership business took a lease of a music studio for three years and individually signed the agreement. However, the money generated from the business was not enough to pay the rent and electricity.
It is submitted that the rent and electricity liability arose because of the use of the premises which is leased to carry out the partnership business. Also, the liability arise by Shaun alone will be held jointly and severally amid Craig and the partnership firm. If the assets of the partnership fall short the debt then the remaining debt will be set off from the personal assets of Craig and Shaun.
If Ronnie successfully sues Shaun and Craig, who is liable to pay that amount of money?
As per section 5 of the Act, every partner of the firm is an agent of the firm and the other partner. Thus, the acts which are carried doubt by the partner of the firm will make all the other partners liable provided the actions are undertaken by such partner within his authority and within the course of dealing of the business. The outsider with whom the partner is dealing may sue the other partners and the firm provided he is not aware of any default if exist regarding the authority of the partner.
It is submitted that Shaun was giving lessons to Ronnie. However, injuries are sustained by Ronnie at the studio as he fell down. Since the injury that is caused to Ronnie is at the property of the partnership firm and is caused while carrying out the business of the partnership firm, thus, such liability will be considered as the liability generated by the partner of the firm (Shaun) and as an agent of the firm the liability will be imposed on the firm and Craig.
Thus, Both Craig and Shaun must pay to the injuries of Ronnie.
Books/Articles/journals
Barron, M. L., Fundamental of Business Laws (McGraw-Hill Education Australia, 15-Sep-2013).
Legislation
The Partnership Act 1891, SA.
Case laws
Commissioner of State Taxation v Cyril Henschke Pty Ltd [2010] HCA 43.
Mercantile Credit Co Ltd v Garrod [1962] 3 All ER 1103.
Powell v. Powell (1932) 32 SR (NSW) 407.
Polkinghorne v Holland (1934) 51 CLR 143.
O’Connell v. Kennare (1943) 60 WN (NSW).
Online Material
ATO, ‘Elder’s Trustee and Executor Co Ltd v Federal Commissioner of Taxation’ 2017 < https://www.ato.gov.au/law/view/document?Mode=type&TOC=%2205%3ACases%3AHigh%20Court%3A1961%3AElder%27s%20Trustee%20and%20Executor%20Co%20Ltd%20v.%20Federal%20Commissioner%20of%20Taxation%20-%20(12%20January%201961)%3A%230102%23Judgment%20by%20Windeyer%20J%3B%22&DOCID=%22JUD%2F104CLR12%2F00002%22>.
E-resources, ‘The High Court of Australia’ < https://eresources.hcourt.gov.au/browse?col=0&facets=name&srch-term=&page=204>.
Section 32 of the Partnership act 1891, Partnership Act 1891, < https://www.legislation.sa.gov.au/LZ/C/A/PARTNERSHIP%20ACT%201891/CURRENT/1891.506.UN.PDF>
Section 41 of the Partnership act 1891, Partnership Act 1891, < https://www.legislation.sa.gov.au/LZ/C/A/PARTNERSHIP%20ACT%201891/CURRENT/1891.506.UN.PDF>
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
