2-1 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev This is the prescribed textbook for your course. Available NOW at your campus bookstore!

2-2 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Partnership and joint venture law Chapter 19

2-3 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Learning objectives At the end of this chapter you should understand: the definition of the term ‘partnership’ the tests used to decide if partnership exists how a partnership is created the matters that should be included in a partnership agreement who has capacity to act as a partner the fiduciary nature of a partnership and the obligations it imposes on partners the power of partners to enter into contracts and when those contracts will bind the partnership

2-4 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Learning objectives (cont.) the liability of partners in contract and tort and the difference between joint liability and joint and several liability the significance of determining whether a piece of property is partnership property the ways in which a partnership can be dissolved by the action of the partners and the court the characteristics and possible functions of a limited liability partnership the advantages and disadvantages of operating a business as a partnership the definition of the term ‘joint venture’ and how to distinguish it from ‘partnership’.

2-5 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Introduction Partnership: The carrying on of a business in common, with a view to making a profit.

2-6 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Definitions Carrying on a business: –Continuity or repetition of action to be carried on in the future In common: –Acting on behalf of each other View to a profit: –Distribution of profits results

2-7 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Tests for determining the existence of a partnership Common law rules: –Intention –Agency –Sharing of profits and losses Statutory rules: –Joint ownership of property –Sharing of gross returns –Receiving a share of the profits

2-8 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Creation of partnership Can be verbal, written or by conduct. Written partnership agreement is desirable as disputes are easier to resolve. Overrides the provisions of the relevant Partnership Act.

2-9 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Contents of a standard partnership agreement Names and addresses of partners and name of firm Place or places from which business will operate Duration of partnership Capital contribution and interest of each partner Share of profits and losses Salaries paid to partners Management duties of each partner Limitations in authority of partners Details of keeping accounts Appointment of bankers Cheque signing Retirement of partners Valuing of shares for retiring/deceased partners Admittance of new partners Dissolution of partnership Competing business setup Resolving disputes

2-10 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Limits on the size of a partnership Number of parties to a partnership generally must be between 2 and 20. For actuaries, medical practitioners and share brokers or stockbrokers upper limit is 50. For architects, pharmaceutical chemists or veterinary surgeons upper limit is 100. For legal practitioners upper limit is 400. For accountants upper limit is 1000.

2-11 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Who can be a partner? Capacity: –Minors are not liable for partnership debts. –Mentally incapacitated persons’ liability is limited if their incapacity is known. –Bankrupts must disclose bankruptcy.

2-12 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Relationship between partners Fiduciary relationship: Partners must render true accounts. Partners must advise full information on all matters affecting the partnership. Partners must account for private profits made without consent of other parties. Partners cannot carry on a business of the same nature in competition with the partnership, without the consent of the other partners. Partners may assign their interest in the partnership to another person.

2-13 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Relationship between partners (cont.) Rules regarding the relationship between partners if no partnership agreement exists: –All partners are entitled to share equally in capital of the business. –All partners are entitled to share equally in profits (and losses) of the business. –Partners are entitled to be indemnified by the firm in respect of payments made and liabilities incurred. –A partner who makes an advance or payment beyond their capital contribution is entitled to interest. –A partner is not entitled to interest on capital subscribed until profits have been ascertained.

2-14 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Relationship between partners (cont.) –Every partner may take part in the management of the firm. –No partner will be entitled to remuneration for working in the partnership business. –No person will be introduced as a partner without the consent of all other partners. –Differences regarding ordinary matters related to the business of the partnership can be decided by a majority of partners. –No change can be made to the nature of the partnership business unless all partners consent. –The partnership books are to be kept at the place of business of the partnership. –Partners cannot be expelled from the partnership.

2-15 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Relationship of partners to third parties Partners will be bound by each other’s actions on the basis of an agency relationship, involving actual and apparent authority, where: –the transaction is within the scope of the business –the transaction has been effected in the usual way –the third party involved in the transaction either:  knows or believes the partner is acting as a partner  is unaware of any lack of authority to act (includes non-partner who is believed to be a partner).

2-16 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Actual and apparent authority Actual: Authority to do acts specified in Partnership Act or partnership agreement. Apparent (implied): Authority that the partner appears to have to third parties, e.g. –selling goods and chattels of the firm –purchasing on behalf of the firm.

2-17 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Liability of partners Contracts—each partner is jointly liable. In tort—each partner is liable jointly and severally. Criminal wrongs—each partner is liable jointly and severally where there has been a breach of a statute that does not require intent as an element. In bankruptcy—if a partner is bankrupt, the partnership may be dissolved. As trustees—no liability for the actions of other partners acting as trustees independent of the partnership. Holding out as partner—liable as if partner of partnership. Outgoing partner—continues to be liable for debts of partnership incurred before retirement.

2-18 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Liability Joint liability: –The partners must be sued jointly and not individually. Joint and several liability: –Every partner is liable jointly and individually.

2-19 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Partnership property Includes all property brought into the partnership, or which is afterwards acquired on account of the partnership.

2-20 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Dissolution of partnership By action of the partners: –At expiry of time –By giving notice –By death of a partner –By insolvency of a partner –Where partnership property is charged

2-21 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Dissolution of partnership (cont.) By court action when: Partner found to be of unsound mind Partner becomes permanently incapable of performing his or her part of the contract Partner is found guilty of conduct calculated to prejudicially affect the carrying on of the business Partner persistently breaches partnership agreement Partnership business can only be carried on at loss There are other just and equitable grounds for dissolving the partnership.

2-22 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Notice of dissolution of partnership Personal notice to persons who have had dealings with the firm Notification in government Gazette Stationery altered Registered business names adjusted at Corporate Affairs Commission

2-23 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Distribution of assets at dissolution of partnership Loans from partners Creditors satisfied Property on basis of contributions of each party Debts and liabilities satisfied Surplus assets divided in proportion, reflecting profit-sharing ratio

2-24 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Limited liability partnerships Legislation in all states permits the creation of limited liability partnerships. It differs from a conventional partnership in that it allows a partner’s liability to be limited to the amount of their capital contribution. Creates two types of partners: –General partner –Limited partner

2-25 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Joint ventures An association of persons for the purposes of a particular trading, commercial, mining or other financial undertaking or endeavour, with a view to mutual profit, e.g.: –Mining ventures –Property development –Entertainment agreements –Share-farming agreements

2-26 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Comparison of joint ventures and partnerships

2-27 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev Advantages of a joint venture Participants: –Not liable for actions of other joint venturers –Receive income separately –Able to compete with each other