The issue of this scenario is related to whether there a partnership was formed between Peta, Samuel and Thomas.
For the aim to govern a partnership business, the rules and regulations of The Partnership Act 1963 must be followed in Australia. The term partnership has been defined under Section 6 of the Partnership Act, 1963. This section illustrates the fact that a partnership is a relationship between individuals who agree on carrying on transaction with mutual interest of ensuring economic prosperity. Thereafter, Section 7 of the said act lays down the regulations and rules through which a partnership is supposed to be created. The provisions of Section 7(1) of the Partnership Act, 1963 the rules mentioned have determined and explained whether a relationship can be called a partnership as per the provisions of 7(2) and 7(4). Therefore to ensure that there is partnership, a few factors need to be taken into consideration. For partnership to exist, it is important that there is a valid agreement to that effect between the parties which is enforceable in law. Partnership is not similar to an independent transaction and for partnership to exist, it is important to state that the partners come together in a joint venture to execute their common goals. In partnership, the rights and obligations between the parties are equally divided and there is similarity of rights and duties and no one is placed at a higher pedestal than the others. The aim of partnership is to work together with a view to make profit.
As per Section 7(2) of the Partnership Act, 1963 the concept of joint tenancy, common tenancy and a part ownership does not result in forming a partnership in itself in relation to anything that is owned by tenants who have either shared or not shared the profits with the use of things owned. The definition of partnership does not change with the change in jurisdiction and it is uniform across the whole of Australia. Under Section 7(3) of the said act, the profits that are shared are the gross returns which do not create any kind of partnership despite the individual who has shared the returns. It is said that they share the common interests in the property from where the returns are obtained. According to Section 7(4) of the mentioned act, an individual will gain shares of the profit through company’s gain itself. Generally, it shall encompass everything when a person is treated to be especially a a business partner when the company is incorporated. However, achieving these shares will not make the individual a partner. Section 7(4)(a)(e) states that there are a few situations when an individual will not be treated as a partner.
Firstly, when an individual gains other kinds of liquidated damages or a debt from the exact profits of the organization, it will not make him a partner of the company. Secondly, if an agent or any employee has provided the share of profit, then they will not be considered to be a partner of that company. Thirdly, when in a written format, an individual produces a loan to the business and it has the ascent of all the partners then the interest for these loans will not be treated as a partner only because a loan was provided. Lastly, a child of a partner who is no more because of the periodic payments shall be a part of the profits that have been made by the business will not make him a partner of the company even if he has obtained the profits.
It was observed in the case of John Grimes Partnership Limited v Gubbins [2013] it was stated that there were a certain specific essentials though which a partnership can be established. While carrying out the business, the purpose was to make the profit. If any of these constituents do not exist then it will not be considered a valid partnership. The partnership created by the legislation need to have the above mentioned conditions. If individuals do not have the intention for making profit from the business then they will not be considered to be partners.
Application
Thomas, Samuel and Peta in this scenario had initiated a business where they take the help of the internet for reselling the assets of the business that had gone through liquidation. It was thereafter provided that an investment of $100,000 was produced by Peta in the business and she was provided with an amount of $6,000 per month gratuity. However, she did not receive any money in the formative years. It has been observed that Thomas and Samuel were not being paid if the form of the employees but by taking the help of the consultancy arrangements if the case of John Grimes Partnership Limited v Gubbins is applied. In this case, partnership existed because the significant elements were present and it intended to continue the business for the common purpose of making profit. Thereafter, it was stated that as per Section 7(4) when an individual gets a part of the profit from the business, then it is believed that it shall be everything that the person aims to be considered as the business partner. Since, the profits are shared and the activities are carried out, those persons will be treated to be as partners. In the mentioned provision, when an individual produces a loan to the business not orally but in a written format that is signed by all the partners then it is suppose to receive an interest for any kind of loan that will not make him the partner. As per this section, Peta was given an amount of $100,000 would not be treated as a loan since she had received no interest amount for it and there was no written contract in place existed in the on going company.
Conclusion
Lastly, it can be concluded stating that partnership was formed between Thomas, Samuel and Peta.
In Australia, there is a duty that the director is imposed with while executing his functions in companies but not in the provisions of common law under the Corporations Act, 2001. Section 180(1) of the Corporations Act, 2001 discusses the duties of a director. The rules and regulations of the directors and officers should work with duty of care and diligence while carrying out the activities that were provided by the organization. Other duties were imposed on the directors as per the provisions of the Corporations Act, 2001. This general duty is considered to be one of the most legislated of the other duties that were imposed on all the existing directors as per the provisions of the said act. Under this particular section, there is a test that makes the application of this section wider. It has been observed that this section was considered to have been violated when a director is put in power based on the same reasons and his actions can be differentiated from which is already taken by the director by the director who had committed the breach. In this broader scope of duty, there are plenty of circumstances where the directors are were held to have violated their duties. The directors were observed to have contravened and breached the provisions for a civil penalty. In this scenario, there was a civil penalty provision as per the Corporations Act where if there is a violation where the Court stated the declaration of contravention based on the rules as per Section 1317E of the above mentioned act. When the Court has provided the declaration for breaching the provisions of the Australian Securities and Investment Commission (ASIC) based on the sections 1317H, 1317S, 206C of the mentioned act and ask for the penalties of the Act. Therefore, as per Section 1317H, the directors who were held liable of contravention for paying a fine to the commonwealth and the maximum limit was $200,000. Additionally, the Court had asked the directors for providing the compensation to any party who had detriments because of the breach of duty care and diligence by the directors as per Section 1317S of the Act. The Australian Securities and Investment Commission have the power and order to impose a ban of the defendant directors for managing the operations of any kind of companies in Australia. As per the relevant Section of 180(1) can be held to be violative are many in number and a some have been explained because of the rulings that were made proved in law cases of Australia. The company owns the duty of care and diligence by not the shareholders of the company and not the directors. Hence, the directors who are in charge of the maximum number of shares in a company are considered for the contravention of the mentioned section. In the case of ASIC v Adler such a situation was noticed. It was held by the Court that there was a loss in the company, which is a requirement for invoking a section but a loss of reputation is treated to be an actual loss. In such cases, the judges had given the rules that state the financial statements of the company that was not approved in a legal manner and therefore, the duty was considered to be contravened. Thereafter, in the matter of Australian Securities and Investments Commission v Rich, it was observed that when there was approval from the Board regarding misstatements, it is treated to be a breach of duty. Sections 674, 728 and 1041H explained the obligations of disclosure and the Court held that as a violation of this duty. The directors were imposed with penalties that consist of heavy fines and restrictions of the management. There was a significant breach of the duty the Court had imposed a ban of two years.
The director’s duties of good faith and loyalty
The duty of care and diligence is similar of the duty of good faith and loyalty and both in provisions of the Corporation Act and common laws. The legislation mandates that the directors are obligated to work with diligence and care and in good faith. The directors have to put the interests of the company and the employees ahead of them and they need to ensure that their acts are directed to reach a common good. The director has to act in the best interest of the company and the employees and their intention should be bona fide. Section 181 of the Corporations Act, 2001 contains the duties of the directors wherein it is stated that the director has to act in good faith and the purpose of the decisions undertaken by the director should be reach a common good and interest of the company. This section states that the discharge of the duties and the executing the powers in the relation to the organization has to be in proper faith and in the best interest of the organization. The activities must be directed for the achievement of a good reason. However, this particular section illustrates the concept of flexibility. It was noticed in the case of ASIC v Hellicar [2012] that the Court had focused on the duties and interest of the company. It was therefore observed that the directors had emphasized on other aspects instead of increasing the profit that resulted in giving relevance. Thereafter, in the case of Australian Securities and Investments Commission v Adler it was observed that the directors involved with the company might not spend all the findings for the interest of the organization. Hence, where the directors have not spend by the funds of the company that are in favor of the shareholders who have invested in the interest of the company for improving the reputation of the directors who have contravened the best interest of the organization. Based on this particular duty, the directors should never go ahead with any kind of personal interest. Therefore, there were transactions that had appeared between the third party and interest of the family. Thus, when the duties are contravened for a penalty the similar penalties are paid in managing business
References:
ASIC v Adler
ASIC v Hellicar
Australian Securities and Investments Commission v Rich
Australian Securities and Investments Commission v Adler
John Grimes Partnership Limited v Gubbins [2013
The Partnership Act 1963 (Cth
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