Section 1(1) of The Partnership Act, 1890 defines a partnership as:
“The relation which subsists between persons carrying on a business in common with a view to profit”.
There have been a lot of legal disputes over the years as to the exact meaning of these words, we will be happy to advise you in relation to your situation.
It may come as a surprise but there are circumstances where it is unclear that a partnership exists.
- Please note that the responsibility of proving the existence of a partnership is on the person saying (alleging) they are or were in one.
So in order to determine if you are in a partnership, we need to examine closely the definition under the Partnership Act 1890 (PA 1890 or ‘The Act’), we will therefore break it down into 6 parts or elements.
- “which subsists between persons”
- “carrying on”
- “with a view to profit”
- “in common”
A partnership is a relationship between two or more persons. It must be by mutual consent and is based on contract, although the word “contract” is or is not actually used. There is no need for the contract to be in writing and it may be oral. A partnership cannot be forced upon you, but the way you behave and the absence of the use of the word “partner” does not mean that a partnership within the definition cannot arise.
The important factor here is the intention of the parties and the surrounding circumstances are all taken into account in determining the existence of a partnership.
2. “Which subsists between persons”
There has to be more than one person to constitute a partnership.
However please note that the relationship between shareholders in a limited company is specifically excluded under the PA 1890. The term “persons” can include companies – two or more companies could be deemed to be in partnership or one company and one natural person also. While companies can be partners, it is probably fair to say that the Act does not really contemplate companies being partners and not all the issues that might arise around companies being partners have been settled by the courts. As a result of this uncertainty, you will frequently see, in commercial agreements, especially joint ventures, a provision stating that “nothing herein shall be deemed to constitute the parties a partnership”.
3. “Carrying on”
This means, a business has commenced as distinct from an agreement of partnership in the future.
The Act defines business as “including every trade, occupation or profession”. Please note that a single venture can constitute a “business”. The Act mentions that a partnership can be entered into for “a single adventure or undertaking”.
5. “With a view to profit”
In a famous UK court case in this area, the judge stated:
“An agreement that something shall be attempted with a view to gain, and that the gain shall be shared by the parties to the agreement, is the grand characteristic of every partnership, and is the leading feature of nearly every definition of the term”.
In the Act the sharing of profits is considered good evidence of the existence of a partnership.
A distinction can be drawn between “profit” and “gain”.
The Irish courts have held in the case of Deane-v-VHI 1992 (which was a competition law case), that these words were not identical, but that there is an area of gain – (non-pecuniary gain in legal speak), which does not equate to profit. Therefore VHI, which is an association, which have as their aim non-pecuniary gain was not considered a partnership.
It therefore follows that if a partnership is formed to make losses and off-set them against income or profits from other sources, it is not a partnership. A unregistered charity might come under this exception and may not be considered a partnership.
6. “In common”
This is the most important factor. Generally, parties will be acting in common when they have a community of interest in the business. The best way to understand this is the idea of principal and agent – in other words each person will be carrying on business on behalf of all the others. The courts have put it this way:
“…the existence of such partnership implies also the existence of such a relation between those persons as that each of them is a principal and each an agent for the others; and that each of them is entitled as partner to an account from the others.”
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