IT WAS AN UNINTENDED PARTNERSHIP
Recently we reviewed a new business idea. Several independent established businesses in different fields wanted to collaborate and provide a range of services to companies in a joint presentation.
The idea was to raise seed money, produce a website and possibly incorporate.
We saw the risk of this forming more than a loose collaboration and advised of the negative effect of being deemed a partnership.
And then the Court of Appeal joined the discussion.
WHAT IS AN ORDINARY PARTNERSHIP?
Let’s look here first.
A partnership is an arrangement based on contract law, trust law, and agency. Individuals (including corporations) come together to pursue a common business.
Whilst there should be a written agreement it can arise from conduct.
The governing law is The Partnership Act 1890, and in England & Wales (not Scotland) a partnership is not separate legally but a collective of individuals.
And each partner can bind the others; has unlimited liability; owes extensive duties to each other; and this should not be undertaken lightly.
THERE’S ALWAYS A CASE
HAMILTON V BARROW & OTHERS [2024] concerned individual Foreign Exchange traders separately managing investor monies and collecting funds to use in FX trading.
THERE’S ALWAYS A PROBLEM
It’s only when issues arise that your confidence in what you did and your “contracts” if you have them, are tested.
One investor in one section claimed he was misled and sued all the FX Traders, claiming they were a partnership and all liable for the acts of one of them.
SO WHAT DID THE COURT DECIDE?
There were a number of strands specific to this case but in essence:
• they were conducting business together;
• they had meetings
• they voted and decided by majority;
• they shared almost identical marketing;
• they had discussed a more formal arrangement and funding;
• they trusted each other;
The Court also held that it wasn’t necessary that they had a profit sharing arrangement in place – unusual but that is what the Judgment held.
ARE THERE ANY LESSONS FOR ME HERE?
Carefully consider what the right structure is for your business and engage early with your Business Lawyer.
However confident you are it pays to take appropriate advice the expense is rarely wasted expenditure and better than fighting off disputes.
ALEXANDER BUSINESS LAW SOLUTIONS are lawyers for business and advise on the right business structure.