“…in the eyes of the law and in particular s.1 of the 1890 Act, partnership is a relationship that is determined by the substance of the interactions between the parties, and not by their conscious wishes or the designation which they choose to apply to that relationship.”
(Milman, A Review of Recent Developments in Partnership Law, Company Law Newsletter, 2009, 251, 1-5)
Discuss, with reference to authority when the law will deem a partnership to exist?
There is confusion as to what deems a partnership. It could be said that partnerships have existed for as long as business has been conducted but until the Partnership Act 1890 most of the law relating to the operation and status of partnerships developed through case law precedent. In regards to section 1 of the 1890 act; it defines a partnership “Partnership is the relation which subsists between persons carrying on a business in common with a view of profit.” The fundamental problem here is that, in the eyes of the law and in particular s.1 of the 1890 Act, partnership is a relationship that is determined by the substance of the interactions between the parties, and not by their conscious wishes or the designation which they choose to apply to that relationship.” I will be discussing what deems a partnership to exist and how we understand it to exist.
The relationship of partnership may be deliberately chosen or it may exist without the partners having made any conscious choice. The partnership may exist even though the joint ventures have said in a written agreement that they are not going to be “partners”. The test always is whether the statutory definition is satisfied. If it is, they are partners regardless of what their agreement says
To understand the legal definition of a partnership we must know the requirements of it. Firstly, a partnership is a relationship based on a contract between two or more people. “The relation between members of a company is expressly excluded from the definition by section 1 (2) (a) of the 1980 Act, and therefore a company cannot be a partnership, although it can be a partner. Section 24(5) of the 1980 Act provides that each partner must have participated in management and be fully informed of all decisions in a timely fashion, since all partners would be liable for debts and other obligations in favour of partnership.
Before the 1890 act was enforced, case law was used to determine what a partnership was. In the case of Pooley v Driver 1877, Lord Wensleydale stated that the law as to partnership is undoubtedly a branch of the law of principal and that every partner is an agent of the partnership. A partnership is a relationship which is contractual in nature, created through an agreement known as the partnership agreement however, the essence of a partnership is the continuing relationship between the partners, personal as well as commercial, with the partnership agreement being only an indication of the relationship. When the courts have to consider whether a partnership exists, they look at the substance of the arrangements and not the stated intentions of the parties. The Partnership Act was then introduced in 1890 which set out guidelines about partnerships, and I will look into this act and discuss what the act deems to recognise when a partnership is valid.