Entity to be registered: partnerships: evidence of partnership
The existence of a partnership is a matter of fact. Generally speaking, the essential elements of a partnership are:
There must be a business
‘Business’ includes ‘every trade, occupation or profession’: therefore, virtually any activity or venture of a commercial nature will be regarded as a business for this purpose.
The business must be carried on by two or more persons in common with a ‘view to a profit’
In other words, there must be a single business, even if that business is carried on in a number of separate divisions. If, on a true analysis, each supposed partner is carrying on a separate business, there can in law be no partnership between them.
A partnership is the relationship resulting from a contract, either express or implied. In determining the existence of a partnership, regard must be paid to the true contract or intention of the parties as appearing from all the circumstances of the case. The ‘true contract and intention’ is often a matter of fact.
A formal, written agreement is not necessary for the formation of a partnership and you will come across many partnerships, which are based on oral or ‘gentlemen’s’ agreements. On the other hand, the existence of a formal, written agreement is not, of itself, conclusive evidence that the relationship between two or more parties constitutes a partnership.
Those parties must share any net profits and losses arising from the business activities
If the terms of any agreement are such that it is technically possible for one party to the agreement to make a profit and another to make a loss (whether in the long or the short term), the relationship between those parties is not one of partnership. However, the division of profits does not have to be equal. It is possible for one partner to have a greater financial interest in the partnership than another and consequently they may receive a larger proportion of the profits.
Those parties individually have the power, by their words or actions, to legally bind the other members of the firm in relation to transactions with third parties
The ‘Aide Memoir for Partnerships’ provides a list of questions, which should help you to establish the nature of the relationship between people in business and to decide whether they are in partnership. This list is by no means exhaustive and any vague or evasive answers should be followed up and pursued in an attempt to get specific answers.