The Elements of a Partnership
This article provides an overview of the current state of partnership law and highlights the elements that form that type of business association.
A partnership is defined in legislation throughout Canada, including Alberta’s Partnership Act, as a relationship between persons carrying on a business in common with a view to profit.
Courts have found that a person conducts a business when the following elements are present: 1) the allocation of time, attention, and labour; 2) the incurring of liabilities to other persons; and 3) the purpose of earning a livelihood. A simpler definition is the act of holding oneself out to others as engaged in the selling of goods or services. Factors that are relevant in the determination of whether there is a partnership include the contribution of skill, knowledge, or assets to a common undertaking, the sharing of profits, and a joint property interest in the subject matter forming the business.
The evidence in the determination of whether a partnership exists must be objectively evaluated. Whether a partnership will be found by a court to exist depends on an analysis and weighing of the relevant factors in the context of all surrounding circumstances.
Parties may be partners even if one of them or both lacked knowledge or subjective intent. They can even be partners contrary to their subjective intentions. Whether a partnership exists depends on whether the parties’ behaviour evidences a partnership agreement. The carrying on of a business “in common” means that there is some form of agreement—written, oral, or implied—between the parties. A partnership may still exist even where the partners agree to carry on the existing business of one of them.
The fact that management of a business rests with one partner does not mean that the business was not carried out by partners in common. Control of the business is irrelevant to the question of whether a partnership exists.
In totality, there are a number of factors that need to be analyzed in the determination of whether a partnership has been established. It is very much an objective exercise.
Invitation for Discussion:
Our litigation lawyers are skilled in business law. If you would like to discuss this blog in greater detail, or any other business litigation matter, please do not hesitate to contact Mohamed Amery or one of the lawyers in the Business Litigation Group at Shea Nerland LLP.
Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.