Essentials of Partnership Law

Essentials of a Partnership

• Key principles of partnership established in Joubert v Tarry:
  • Partners must each contribute to the partnership.
  • Business operations should benefit all partners jointly.
  • The primary objective is to generate profit.
  • Formation requires a legitimate contract.

Contribution

• Every partner needs to make a significant contribution of commercial value.
• Contributions can include money, property (shares or real estate), skills, knowledge, contacts, and expertise.

Joint Benefit

• Each party must share both profits and losses; individual claims to profits are not allowed.
• The partnership's purpose is collective benefit, not individual gain.

Profit Motive

• Not strictly a requirement for monetary profit; other benefits, like cost savings, are acceptable.
• As established in Ally v Dinath, the goal can extend beyond mere monetary motives.

Legitimate Contract

• A valid partnership arises from a legitimate contract, reflecting essential elements of partnership.
• Parties must intend to form a partnership, with courts considering the essence, circumstances, and actions following the agreement (as per Pezzutto v Dreyer).

Naturalia of a Partnership

• Profit Sharing:

  • Defined by partnership agreement; if not specified:
    • Based on each partner’s contribution value.
    • If value cannot be determined, profits are shared equally.

• Loss Sharing:

  • Following the same basis as profit sharing.
  • Exemptions from loss-sharing require agreed terms.

• Power of Representation:

  • Each partner has the authority to act on behalf of the partnership.
  • Authority can be restricted by mutual agreement.

• Compensation for Contribution:

  • Partners are not entitled to compensation outside profit sharing agreements.

• Partnership Fund:

  • Partners are joint owners of partnership assets, regardless of initial contributions.
  • Assets form the partnership fund.

• Extent of Ownership:

  • Contributions become joint assets under general rules.
  • Original owners retain ownership of contributed assets unless specified for partnership use, affecting relations with third parties.

• Restricted Usage:

  • Partnership assets are for partnership use only, barring co-partner consent.
  • Unauthorized use results in liability for damages or interdict.