Partnerships as a busines vechicle, Summaries of Law

Download Partnerships as a busines vechicle and more Summaries Law in PDF only on Docsity! The legal definition The legal definition of what constitutes a partnership is provided by s 2(1) of the Partnership Act, Cap. 110; which defines it as ‘the relation which subsists between or among persons, not exceeding twenty in number who carry on a business in common with a view of profit’. Therefore, if persons have agreed to form a partnership, they will be regarded as a partnership in the eyes of the law only if they comply with the requirements of s 2(1) of the Act. If the arrangement is informal, and the parties have not actually thought about forming a partnership, it is still possible that the law will regard them as partners. This is because any entity that satisfies the definition in s 1(1) will automatically be a partnership, whether this is intended or not. The amendment of 2022 introduced a beneficial owner and defined to mean a natural person who ultimately owns or controls a partnership or the natural person on whose behalf a transaction is concluded in the partnership and includes a natural person who exercises ultimate control over a partnership. What are the requirements of the legal definition? Relation As this word implies, a partnership is not an entity in its own right, like a company, but a relationship based on a contract between two or more people. A partnership does not have a legal personality separate to that of the partners, and therefore cannot make contracts or own land. The relation between members of a company is expressly excluded from the definition by s 2(3) of the Act, and therefore a company cannot be a partnership, although it can be a partner. Between persons Natural persons (individuals) may be partners and, since companies are regarded as persons by the law, they can also be partners. Carrying on business Section 1 of the Act defines a business as including ‘every trade, occupation, or profession’. Therefore once a business has progressed from the initial stages of being set up to such a stage that it can be said to be being carried on, it has become a partnership. In common This means that the partners participate in the business, which effectively means that they have the right to manage it. Section 2 Act provides that every partner must have a say in management. This can be altered by agreement, but since all partners are liable for debts and obligations of the partnership, it is understandable that they will normally want to be involved in management, or at least be kept fully informed of all decisions in a timely fashion. With a view of profit The key to this element of the definition is that the parties must intend to make a profit. It is not necessary that a profit is actually made; a business which ceases before profits are made could still be a partnership during its brief life. Types of Partnerships; The Partnership Act gives 3 categories of Partnerships; 1. General partnerships-Section 2(1) non-professional, not exceeding 20 carrying on business in common with a view to making profit. 2. Professional Partnerships-Section 2(2) not exceeding 50 members for the purpose of carrying on a profession. 3. Limited liability partnerships-Section 47, not exceeding 20 persons with one or more persons called general partners. General Partnership A general partnership is the shared ownership of a business by two or more people. Like a sole proprietorship, there is no legal separation between the business and the individual partners. General partnerships are relatively easy to form though risky. In a general partnership the number of partners shall not exceed 20_Section 2(1) all being general partners. A general partnership allows each partner to act independently, pool resources, avoid high startup costs, and avoid large amounts of formalities. However, the partners must be able to accept potentially unequal contributions of time and resources, fully trust the business judgment of every other partner, and be willing to take on the risk of being fully and personally responsible for the business’s debts and liabilities. Also, each person should bear in mind that there is no default structure for resolution of partner conflicts. That is, no one individual’s decisions govern any of the other partners unless a customized partnership agreement says so. Any partner can enter into a binding contract on behalf of every other partner; therefore it is critical to establish a strong decision-making policy within the organization. The most typical method of partnership formation is by agreement among the partners. After registering the business name with the Registrar, the partners should draft and sign a partnership agreement that lays out the terms under which the partnership will operate.