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Question 1
1. Explain, with reference to relevant prescribed case law for this module, how the court
determines whether a specific business is a partnership.
To determine whether a specific business is a partnership, courts refer to various elements
established through case law and legal principles. Key cases and legal doctrines provide the criteria
used by courts in their determinations.
Elements of a Partnership
A partnership is characterized by the following elements:
Association of Persons: A partnership is formed by an agreement between two or more
persons who intend to work together as co-owners of a business for profit. This is based on the
mutual consent and participation of the partners in the business operations.
Intention to Form a Partnership (Affectio Societatis): The intention to act as partners and
share profits and losses is critical. This intention, referred to as "affectio societatis," implies
that the partners aim to cooperate on an equal footing to achieve mutual benefit.
Conducting Business for Joint Benefit: The business must be carried on with the intention of
mutual benefit. The term "business" here includes any activity that occupies time, attention,
and labor for the purpose of making a profit. Each partner should be entitled to a share of the
profits.
Profit Motive: The primary purpose of the partnership must be the acquisition of patrimonial
benefit, typically profit. Even though the definition of profit can be broad, it excludes
non-pecuniary objectives like the advancement of culture or sport.
Legal Nature of a Partnership
A partnership does not have a separate legal personality. It is essentially a contractual association of
persons, and its existence in law is not independent of its partners. This is known as the "aggregate
theory," where the partnership is not an entity that exists separately from its partners. Instead, the
rights and obligations of the partnership are the rights and obligations of the partners jointly.
Determining Factors in Case Law
Courts look at various factors and circumstances to determine if a partnership exists. Some
significant cases include:
Pezzutto v. Dreyer: This case established that contributions by partners, whether in the form
of labor, skills, or capital, are vital in assessing the existence of a partnership.
Standard General Insurance Co v. Hennop: The court in this case emphasized the need for a
business activity that occupies time and effort for profit-making purposes as a hallmark of a
partnership.
