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Structures 3rd Ed.
, STUDY UNIT 1
THE CONCEPT OF A PARTNERSHIP
THE TERM “PARTNERSHIP
▪ Various meanings are ascribed to term
▪ In comm. Law, it means a distinct legal relationship between persons
▪ Legally, it refers to legal relationships arising form an agreement, in which ea contributes
towards a buss which is carried on in common with the object of obtaining mutual material
benefit
▪ Wide variety of ptshp exist. In this will focus on trading ptshp
GENERAL FEATURES OF PARTNERSHIP
▪ Number of partners(pt) – at least 2 members(coz to have contr have to have at least 2 ppl)
and restricted to 20
▪ Object of ptshp – aimed at getting material or patrimonial benefit
▪ Associative element – intention of pts to work 2gether on equal footing to get mutual
material benefit. This is called the affection societatis. In practical terms, mean working
together as equals to make profit
▪ No legal personality – simply contractual agreement and no existence in law independent of
its pts
▪ Informal information – ptshp formed by agreement, even if it is tacitly
LEGAL NATURE OF A PARTNERSHIP
o Internationally there are diff views on legal nature of ptshp.
o Some countries adhere to “entity theory” and view ptshp as body existing independent of
members, even though pts are liable for payment of ptshp debts. In these countries, ptshp
can get own rights, liabilities and assets
o Other countries (inl RSA) support “aggregate theory” ptshp regarded as contractual
association of specific persons. No legal personality. Rights and obligations of ptshp is those
of the pts
o Neither one of these theories are followed dogmatically. Country’s legal system usually
decides on of these, but the other theory is sometimes used when practical considerations
or equity demand it
Excessive emphasis is placed on aggregate theory in RSA. Has following consequences:
1. Dissolves whenever composition of members changes. Can occur by death,
retirement, admission of new partner. If ptshp dissolves, whole enterprise can b
, liquidated or new ptshp comprising of new members take over and continue the
buss of previous ptshp
2. Ptshp can never b owner of assets, nor b legally entitles to rights or liable for
responsibilities of ptshp. Pts are liable for responsibilities of ptshp, the creditor
of ptshp can recover debt form pts in personal capacity.
o Although view that only association of persons is closely adhered to, it’s not being applied
consistently. Consistent application can sometimes give rise to practical problems and even
injustice. For sake of efficacy and equity, ptshp can b treated as separate entity in certain
and limited cases and under certain conditions (ex. sequestration and litigation)
Litigation
o Rights and duties of ptshp are those of the pts. All partners must sue and be sued jointly in
their own names.
o But ito Rules of Court, a ptshp can sue and be sued in buss name. When judgment, ptshp
assets must first b exhausted before execution can be levied on separate prop of pts.
Sequestration
o For purpose of sequestration, Insolvency Act treats ptshp independent separate from its pts
o Ptshp estate and estates of various pts are sequester. Simultaneously but separately
o Premise of the act is that, ptshp assets should b used for payment of ptshp creditors, while
pvt creditors of a pt should rely on the separate estate of that particular pt. Thus pvt
creditors cant claim against ptshp estate and creditors of ptshp cant claim against pvt estate
of pt.
o If residue remains in one of pvt estates after all creditors of that pt have been paid, the
balance will b available fo the trustee of the ptshp estate in so far as it may b required for
payment of ptshp debts. Should a surplus remain in ptshp estate, it will b divided and ea
pt’s proportional share will b made available to the trustee of his personal estate.
o Act provides that separate liquidation and distribution accounts must b framed in the ptshp
estate and estate of ea pt.
o To ascertain whether application by pt for his rehabilitation to b granted, only claims against
his pvt estate will b taken inot account and not the claims against the ptshp estate as well.
Court may however take into consideration the conduct oth the pt with regard to ptshp
affairs.
THE PARTNERSHIP AGREEMENT
• Ptshp is established when prospective pts conclude a ptshp agreement with ea other
• Valid ptshp agreem. Is prerequisite for establishment . Cant b created unilaterally.
• Must comply with following elements of valid contr:
- parties to contr must have contractual capacity
- parties much reach agreem.
- contract must b lawful
- must b possible to render performance ito the contr
- contractual formalities, if any, must b complied with
Contractual Capacity
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