Q&As

How do I determine whether two retiring partners were actually in partnership with the other partners?

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Published on LexisPSL on 25/09/2019

The following Corporate Q&A provides comprehensive and up to date legal information covering:

  • How do I determine whether two retiring partners were actually in partnership with the other partners?

A partnership is formed by ‘persons carrying on a business in common with a view of profit’ (section 1 of the Partnership Act 1890 (PA 1890)). As such, a partnership is not a separate legal entity but is a relationship between partners based on contract. PA 1890 will apply default contractual terms to the partnership in the absence of agreement to the contrary, but many partnerships exclude or modify the provisions of PA 1890 by entering into their own partnership agreement.

In the absence of any agreement to the contrary, PA 1890 sets out certain rules to apply in determining whether a person is a partner in a business (mostly phrased in the negative) including, among other things:

  1. receipt by a person of a share of the profits of a business is prima facie evidence that they are partner in the business, but does not of itself make them a partner in the business

  2. receipt by a person of a payment contingent on or varying with the profits of a business does not of itself make them a partner in the business

  3. receipt of a debt or other liquidated amount out of the profits of a business does not of itself make them a partner in the business or liable as such

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