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Partnerships - Coggle Diagram
Partnerships
Partnerships
Structure that involves more than one person carrying on the business in common with a view to profit. Governed in QLD by Partnership Act 1891 (Qld)
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Establishment
Creation based on an understanding between partners. Common to be established under contract, however, may be through actions or oral.
Essential elements
Partnership Act defines a partnership as:
the relation which exists between persons carrying on a business in common with a view to profit
- There must be a valid agreement between the parties as required by the word 'relation'
- There must be a business being carried on. Defined to include every trade, occupation and profession. Generally excludes domestic transactions and hobbies.
May be oiver time or a single event, see Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321
- There must be two or more persons working in the business together ('in common')
- Must be motivation to run the business so as to profit.
Liability
Each partner is both a principal and agent of the business as a result of the statutory agency relationship provided for by the Partnership Act.
Each partner may incur liabilities on behalf of the business, and each partner will be liable for debts and obligations incurred by other partners
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Partners' relationship, rights and duties
Regulated by the law of fiduciary obligations, a partnership requires mutual trust and confidence. Chan v Zacharia (1984) 154 CLR 178
This means full disclosure of material information to partners and to act in good faith in the best interests of the partnership rather than own interests.
A number of remedies exist to resolve breaches including injunction (to stop partner working for competing business), or account of profits ( to claim back profits made by partner in breach of duty).
Fundraising
Unlike companies, partnerships cannot raise funds from the general public. The partnership relies on partners' savings and loans. However, a partnership can have up to 20 partners, greatly increasing the wealth pool.
Continuityof existence, termination
Unless an agreement exists to the contrary, any changes of the membership of the partnership terminate the business. Partnership Act
This provision may be altered by the partnership agreement. Large partnerships may continue to operate even though dozens of partners change each year.
Privacy
Aside from basic tax requirements no obligation exists for partners to disclose financial information.
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Advantage of lack of formality and low cost to establish. Easily changed and good privacy for commercial dealings. Ability to pool capital and simple tax arrangements.
Disadvantages include unlimited liability, a limitation on numbers who can participate in the partnership, difficulty in disposing of the share in partnership and reduction in amount of individual control
Limited Partnerships
Relying on registration, statew legislation allows for one general partner with unlimited liability and one or more limited partners whose liability is capped at the amount of capital they have paid (or promised to pay).
Limited partners CANNOT take part in the management of the business of the partnership and cannot bind the firm. They may inspect books.
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