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The existence of a business
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The essential is that there must be some commercial venture. This excludes relationships whose basis is merely joint ownership of property without any common commercial venture.
In Keith Spicer Ltd v. Mansell [1970] the defendant and another person intended to set up a company to take over and run a restaurant owned by the defendant. They opened a bank account in the name of the proposed company but left off the word ‘Limited’. The second promoter ordered goods from the plaintiff for the proposed company, which was never formed and the plaintiff sued the defendant for the price, arguing that the two persons were partners. The Court of Appeal rejected this. The defendant and the other promoter were merely working to form a company but not ‘carrying on a business in common with a view of profit’. Had they actually started trading in anticipation of the company’s incorporation the decision would have been different.
Partnership can be formed for the purpose of carrying through one transaction: Mann v. D’Arcy [1968].
Carried on in common
The distinction which is important here is between being merely connected with the business in some capacity and actually participating actively within it. In Briton v. The Commissioners of Customs & Exise [1986], the court rejected the existence of a partnership between a husband and a wife where the wife merely helped in what was his business. In Saywell v. Pope [1979], Mr Saywell and Mr Pope were partners and their wives did some work for the firm. The firm expanded in 1973, after which the wives took a more active part in the business. The firm’s accountant suggested that the four should draw up a partnership agreement; this was done but the agreement was not signed until June 1975. Between 1973 and June 1975, the bank mandate still only mandated Mr Saywell and Mr Pope, the wives contributed no capital. A share of the profits had been credited to them for 1973 and 1974 but they had never drawn on them. The court agreed with the Inland Revenue that the wives only became partners in 1975 since, before the signing of the agreement, the wives had never done anything in the capacity of partners; they had never been integrated into the firm.
With a view of profit
The major essential in identifying the existence of a partnership relates to taking a share of profit from the business.
In Britton v. The Commissioners of Customs & Excise (1986) the profits from the business were paid into a joint bank account which operated both as a business account and the domestic account from which the wife drew. The court held that: ‘The profit was Mr Britton’s and Mrs Britton as his wife had access to it.’ Sharing profits did not of itself create a partnership. And in Saywell v. Pope (1979), the fact that the wives did not draw on the share of profits credited to them was regarded as evidence of absence of receipt of those profits which required something more than a mere entry in the accounts. What is required is a business in common as well as the sharing of profits.
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Persons capable of being partners
A limited liability company can be a partner if authorised by its memorandum of association: Newstead (Inspector of Taxes) v. Frost [1980]. An enemy alien cannot be a partner.
A minor can be a partner but can repudiate the agreement at any time during minority or during a reasonable period thereafter, but will be unable to recover any money paid under the partnership agreement unless there is a total failure of consideration. In Steinberg v. Scala (Leeds) Ltd [1923] the plaintiff purchased shares in the defendant company, paying money on application and on one further call made by the company. Being unable to meet any further calls, she repudiated the contract while still a minor and claimed recovery of the money already paid. The claim for recovery failed as there had been no total failure of consideration since the plaintiff had received what she had contract for. The minor will not be liable for any of the firm’s debts during minority but can ratify them on majority. Capital invested by a minor can be used to meet the firm’s debts. The minor can be the firm’s and the other partners’ general agent even though without personal contractual capacity.
A person who is unsound of mind can escape from a partnership agreement if he can show that he was unsound of mind when he entered the agreement and that the other partner(s) knew that he could not understand the nature of the agreement. The fact that a partner is unsound of mind is a ground for the other partner(s) to petition for the firm’s dissolution
Firm and the firm name
Partners may trade under any ‘firm name’ they please but where the name is not a combination of their own names, the name is subject to: (i) compliance with the Business Names Act 1985 and (ii) the common law tort of passing off.
The Business Names Act 1985.
There is a restriction on the use of words giving the impression that the bussiness is linked with central or local government; in addition certain words require prior permission: for example, bank, building society, trust and so on. Where a business name is used, the stationery and so on must carry the names and addresses of the individual partners and a notice must be prominently displayed at the place of business with the same information.
Passing off.
The firm name must not be so like that of an existing business as to cause confusion in the mind of the public. In Ewing v. Buttercup Margarine Co. Ltd (1917), the plaintiff, who traded in dairy products in the north of England and Scotland as the Buttercup Diary, successfully obtained an injuction against the defendant company which was registered in London. Normally the two concerns must also carry on the same business but this is not absolutely necessary. In Annabel’s (Berkeley Square) v. G. Schoek (trading as Anabel’s Escort Agency) [1972], the plaintiff was able to obtain an injunction to prevent the defendants from using their name in a way which would damage the goodwill on their night club.
Illegal Partnerships
Partnership can be illegal because the business is intrinsically illegal, as in Foster v. Driscoll [1929], where the shipping of alcohol into the USA during prohibition was contrary to the laws of a friendly foreign state; or because the business is carred on illegally.
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A partnership is an illegal association if the number of partners exceeds the legal maximum, which is 20 for trading partnerships. Solicitors, accountants and stockbrokers are not subject to any limitation and many professional firms have been exempt by statutory instrument including patent agents, surveyors, auctioneers, valuers, estate agents, land agents, actuaries, consulting enginrees, building designers and loss adjusters.
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