PARTNERSHIP.

a legal relationship arising from an agreement between 2 or more people usually not exceeding 20 in terms of which they agree to contribute money, property or labour to enjoy the joint enterprise with the object of making profit to divided among them themselves.

In Zimbabwe partnership law is mainly governed by common law

Formation

A partnership may be formed orally or in writing. Where the agreement is reduced to writing the resulting document which sets out the terms of agreement is called a partnership deed/agreement. Partnerships may also be formed impliedly.

Fink v Fink : a husband and wife bought 3 cows and started to sell surplus milk. This grew into a business. Their relationship however soured and they divorced. The husband wanted all the business property claiming that there was no partnership. The court noted that both contributed money and labour and held it to be a partnership though there was no formal agreement other requirements of a partnership were present. See also Isaacs v Isaacs.

In cases where people put their agreement in writing and the agreement is vague the courts will look at the true nature of the agreement:

Joubert v Tarry and Company: one put his property a coal mine the other a coalmining expert put his industry and skill. The agreed to share the profits but styled their agreement as one of lease by the mine owner to the expert. The court however held the agreement was one of partnership.

Characteristics/Essential Elements

  • Each partner must bring or contribute something to the partnership whether money, labour or skill
  • The object of the partnership must be lawful not contra bonos mores e.g. to run a brothel, unauthorised lottery or any other unlawful activity
  • Profit or losses must be shared amongst partners since business is carried out for joint benefit. Profits or losses are shared int he manner prescribed in the partnership deed in the absence of one then they are shared in the proportion capital was contributed in the event that this cannot be ascertained then they are shared equally (Fink v Fink)
  • Object must be to make profit any other purpose means it is not a partnership
  • 2 to 20 partners except in some special cases e.g. professional associations like law firms accounting firms may exceed 20.
  • Relationship must be more than simply having a joint interest e.g. neighbours joining together to build a wall between their properties: Henwood and Company v Westlake and Cole : 2 builders and 2 carpenters jointly contracted to erect a building. It was agreed that that each was to contribute work for which he was qualified but each would be paid separately by the owner of the building. It was held there was no pooled undertaking, no common business and therefore no partnership.

PARTNERSHIP VERSUS A COMPANY

PARTNERSHIP / COMPANY
Formation / Orally/in writing / Incorporated in terms of the companies act cap 24.03
Separate existence / Does not have a separate legal existence from partners / Enjoys juristic personality
No. Of members / Usually 2-20 / Private company 1-50
Public company minimum of 1
Liability / Except in limited partnership each partner is liable for all partnership debts / Shareholders are only liable for the amount unpaid on their shares
Succession / Except where specific provisions are made partnerships terminate upon death or insolvency of a member / Perpetual
Capital / Provided by partners

Duties of partners

  1. Act good faith- partners must display utmost good faith in all their dealings with one another. This duty is also called uberrima fides. Partners must not, get a secret profit from any transaction concerning the partnership, compete for business with the partnership,use partnership property for private gain
  2. To contribute whatever he/she agreed to contribute towards partnership capital
  3. Duty to carry on business- like agents partners must perform their tasks/mandate express and implied
  4. Duty to share losses

Rights of partners

  1. A share of the profits
  2. A partner may demand an account of partnership dealings
  3. Inspect all books at any reasonable time
  4. Inclusion in the management of the business
  5. Reimbursement for all necessary and reasonable expenses incurred in carrying out partnership business

NB: Partners have no right to a salary unless agreed to beforehand.

Partner as agents

Each partner is an agent and has implied authority to bind the partnership, provided the act was made in the name of the partnership and the transaction is within the scope of its objects. In Standard Bank v Goodchild a partnership was held liable where a partner in trading firm made promissory notes in the partnership’s name , discounted them with the bank and misappropriated the proceeds to his personal use. However, in Meyer v Mosethal Bros Ltd, it was held that a partnership will not be held liable unless it is proven that the transaction fell within scope of partnership.

TYPES OF PARTNERSHIP

Ordinary partnership

Partners are liable jointly and severally for all debts and obligations of the partnership.partners can bind themselves to a creditor so that each partner is liable in solidium for the debt. Liability of partners is unlimited

Extra-ordinary partnerships

Theseare also called special or limited partnerships. They confer a kind of limited liability on dormant partners who are not answerable to partnership creditors but solely tohis co-partners. The extent of his liability to his co-partners is determined by what sort of dormant partner he is. The dormant partner may not act as an ordinary partner nor may he hold out himself to third parties as an ordinary partner, should this happen to the prejudice of the third party he loses his protection. In the case of doubt or vagueness on the status of a partner the courts are likely to interpret it as an ordinary partnership. There are three types of extra-ordinary partnerships

1 Anonymous- created where parties agree to share profits of a business which is carried on byone or more of partners in his name while the dormant partner’s name is not disclosed to the world and remain anonymous. His name is concealed from the outside world. He however remains liableto his co-partners for his pro rata share of losses. He has the right to inspect al partnershipbooks but may not participate in the management of the firm

2 Partnership Encommandite- business is carried out by active partners with the dormant partner contributing a fixed sum of money and receiving a share of profits. His liability to his co-partners is limited to the extent of the capital contributed by him.

Anonymous and partners Encommandite are similar in that existence of both is not disclosed to third persons, their liability is only to co-partners not partnership creditors and that both constitute an exception to the liability of the undisclosed principal rule of agency.

3 Limited Partnerships- a partnership consisting of general partners who conduct the affairs of the business and special partners who contribute a specified sum of money but are not personally liable beyond that amount.

Effect of Partnership Contract

  1. A partnership is a contract uberrima fides. Partners stand in a fiduciary relationship to one another and must observe utmost good faith in all dealings.
  2. Since a partnership has no separate legal personality from its members, partnership rights and obligation do not vest in the in the firm but in members jointly and severally
  3. Partnership property- since it has no legal personality it cannot own property. What is customarily referred to as partnership property is in fact owned by partners jointly in agreed proportions
  4. Property originally contributed- corporeal movables which are in possession of a partner and are intended to form partnership property become such without further delivery since each partner is an agent of the partnership. Ownership passes to partnership by constitutum possessorium
  5. Rights and duties- rights and duties of partners are regulated by the partnership agreement and are owed to fellow partners.
  6. Each partner is a debtor to the others for what has undertaken to contribute.

Shingadia v Shingadia: 3 brothers entered into a partnership. They all agreed to contribute but the third brother failed, the other 2 sought to sue him. The court held that a partnership is not separate legal entity as a result a partnership cannot sue one of its partners, the partners have to sue in their individual capacities.

Termination of a partnership

  1. Agreement express or implied. Hitchins v Chapman
  2. Death of a partner unless partnership agreement allows for continuance for benefit of partners. Tarbett v Attwell Executors’
  3. Insolvency of partner
  4. Completion of partnership business. Dube v City Promotions; Subat and Marinelli v Agostino
  5. Order of the court at the instance of a partner for a good reason e.g. failure to make profit or a partner failing his duties. Armstrong v Wallwark.
  6. Change in membership or admission of a new partner
  7. Lapse of time where it was agreed it will run for a certain period
  8. If at the outbreak of war an alien partner is resident in enemy territory the partnership is ipso facto terminated. Stern v Wentzel and Lombard
  9. If purpose for which it was formed can no longer be achieved

Effect of termination

  1. Agency relationship between partners ceases
  2. Unless otherwise provided for partnership agreement provisions no longer bind
  3. Right and duties accrued by ex-partner after termination are not binding on binding but on him alone.