Establishment Of Partnership Amid Steve, Joe, And Mike

Applicable law

Whether there exist a partnership amid Steve, Joe and Mike?

When people want to operate their business then there are various kinds of business structures that are available. The same are sole trader ship, partnership and a company. When the business is carried out by an individual without the involvement of any other person and he is the sole controller of the business then it is a sole trader ship. When the business is carried out by registering the business as per the guidelines of the revenant statutory legislation, then, a company is formed which has the separate legal entity in the eyes of law. (KLManagement, 2017)

There is yet another kind of business entity that can be established by the people in order to run their business and is called partnership.  A partnership is such kind of business structure which is framed when there are two or more than two persons (maximum number of persons to establish a partnership are twenty) who intends to carry out business in a continuous manner with a common intention and with the sole object to earn profits and share profits.

A partnership is a business which runs on the principle of agency and where the partners are considered to be the agents of the firm. The law of agency signifies that the partners are the representators of each other and the firm and vice versa. Thus, the acts of the partners are enough to bind all the other partners and the firm, provided, the acts which are undertaken by the partners are within their authority (The Law Teacher, 2017). In Alagappa Chettiar v Coliseum Café [1962] it was held that a partnership firm does not have a separate legal existence like a company and thus the acts of the partners or the firm will bind the other partners for the acts which are carried on within the authority of the partners.  (LawNotes, 2010)

Thus, in order to consider any relationship into a partnership the main essential ingredients that are required are submitted herein under:

1. Number of persons – A single person cannot operate a business in the form of partnership. Thus, in order to establish a business structure in the form of a partnership the minimum numbers of person that are required are two and the maximum number of persons who can frame a partnership are twenty. Only two or more than two persons must be required in order to operate the business in the form of partnership. No single person make a partnership. it was held in Soh Hood Beng v Khoo Chye Neo (1897) that an organization with more than twenty persons cannot be termed  as a partnership organization.
2. Preparation of partnership business is not an act of partnership and is held in Spicer (Keith) Ltd v Mansell [1970]. The court submitted that it is necessary that there must be carrying of business in order to constitute a partnership. mere preparation will not makes the transaction as an act of partnership.
3. Business of continuous nature – When the partnership needs to be established then it is necessary that all the partners must have establish the partnership for a business structure which must be of continuous nature and is held in Smith v Anderson (1880). By continuous nature does not means that the business must be for a prolonged period of time. It is held in Re Griffin; Ex parte Board of Trade (1890) that a partnership must be established for single transition, however, it is necessary that there must be continuity of the acts and the transaction must be accomplished. In the leading case of Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) the partnership is established amid the partners for the accomplishment of a single transaction and the court held that the relationship is of continuous nature and thus there is presence of partnership amid the people.
4. Common intention – When the business is carried out then in order to consider the same as a partnership it is necessary that the all persons or partners must have common intention to carry out the tasks in the form of partnership. Common intention signifies that all the persons intend to abide by the acts or omissions jointly and severally of all the partners. All the partners must be carrying out the business activity with the main intent to be acting like partners. Thus, presence of common intention is very significant in order to consider any relationship as a partnership and is held in Lang v James Morrison & Co Ltd (1912).
5. Main aim to earn profits – It is necessary that in order to consider any relationship as a partnership relationship it is necessary that the partner must intend to share the profits or the losses either equally or as per the ratio that is mutually decided by the parties. Sharing of profits and the losses is very important in order to consider any business establishment as partnership and is rightly held in Smith in Mollowo, March & Co v Court of Wards (1872).

Once all the elements are comply with then the business structure is considered to be partnership and the persons who are associated with such business structure are considered to be the partners of each other and thus share the relationship of an agency. All the partners are liable for the acts of each other and the acts of the firm and vice versa.

Essential elements required to establish a partnership

The law is now plied to the facts of the case.

As per the facts,

Steve in October 2014 has bought a horse ‘Lighting Spirit’ from the breeder for RM3000,000 and the horse showed great strength. The horse was only 6 months old. But, Steve is in need of more funds in order to breed the horse and to train him. Steve met Joe and Mike and told them that he is in need of funds and how strong the horse is and how much potential the horse has. Joe and Mike are found to be interested in the venture of Steve.

The main terms that are decided amid Steve, Joe and Mike are:

1. Both Joe and Mike would each pay RM 200,000 as 1/3^rd share in the Lighting spirit;
2. Steve would train the horse and will not take any compensation for the same;
3. The training will be provided on the farm of Joe without any charge;

1. Mike will look for jockeys;
2. All issues will be deiced by majority;
3. Price money will be used to pay for the expenses.
4. In 2016, the shores will be sold and the profits will be shared equally.

All the conditions are settled amid the parties orally. In 2016, the horse is sold for RM2.4 million and the profits are shared.

It is submitted that all the three, Steve, Mike and Joe are in the relationship of a partnership mainly because:

1. The relationship is amid three persons, that is, Joe , Mike and Steve and thus they are more than two persons and thus they comply with the first requirement of partnership;
2. There all are not at the preparation stage of partnership, rather, all the three has indulged themselves in the acts of the business of the partnership, for instance, Steve had given training to the horse, Joe has provided his farm and Mike has arranged for the jockey and all the tasks are duly performed by all the three;
3. The acts that are undertaken by Joe, Mike and Steve though is the part of the single transaction, however, it is considered to be an act of a continues nature and thus comply with the ‘continues ‘requirement of the partnership. continuity of the business is not always essential to establish a partnership and is rightly held in Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974);

1. All the three persons, that is, Joe, Mike and Steve, have common intention to pursue the transaction they are indulged int. The main intention of all the three persons is to train the horse and to gain maximum out of the same after selling it at the end of 2016. The intention is static and common in order to pursue one common objective of haring profits;
2. All the three Steve, Joe and Mike has ultimately shared the profits that they have gained after selling the horse in 2016 end. Thus, one the most essential criteria of partnership, is to carry out transaction with the aim ;to earn profits and share losses’ is met by Steve, Mike and Joe.

Thus, all the elements that are required in order to comply to establish a partnership is met by Steve, Mike, and Joe. It does nit make any difference that Steve has not disclosed the true investment made by him while purchasing the horse. Steve has spend RM 3000,000 where as he disclosed that the horse is purchased by him of RM 6000,000 as both Joe and Mike has contributed RM 2000,000 each as the cost of horse (1/3^rd as part of their share). The disclosure is not relevant as the same was not part of the partnership and is an act that is taken by Steve before the establishment of the partnership amid the tree.

Conclusion

Thus, it is concluded that there exits a partnership amid Steve, Joe and Mike as all the elements that are required to establish a partnership amid them exits. Thus, there is presence of partnership relationship amid all the three as they have entered into a single transaction of continuous nature with the main aim to earn profits.

References

Case laws

Alagappa Chettiar v Coliseum Café [1962] MLJ 111.

Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321

Lang v James Morrison & Co Ltd (1912) 13 CLR 1.

Re Griffin; Ex parte Board of Trade (1890) 60 LJQB 235

Spicer (Keith) Ltd v Mansell [1970] 1 All ER 462

Soh Hood Beng v Khoo Chye Neo (1897) 4 SSLR 115.

Smith v Anderson (1880) 15 Ch D 247

Smith in Mollowo, March & Co v Court of Wards (1872) LR 4 PC 419 

Online Material

KLManagement (2017) Type of Business entities in Malaysis (online). Available at: https://www.klmanagement.com.my/blog/type-of-business-entities-in-malaysia/. (Accessed on 22^nd October 2017).

LawNotes (2010) partnership (online). Available at: https://graguraman1.blogspot.in/2010/07/partnership-law-346.html. (Accessed on 22^nd October 2017).

The Law Teacher (2017) Partnerships One Of More Common Modes Of Business Operation In Malaysia (online). Available at: https://www.lawteacher.net/free-law-essays/company-law/partnerships-one-of-more-common-modes-of-business-operation-in-malaysia-company-law-essay.php. (Accessed on 22^nd October 2017).