When does a partnership exist?

A recent case has considered whether the nature of a father and son’s business relationship constitutes a “partnership”.

Background

The Partnership Act 1890 defines a partnership as the relationship which exists between persons carrying on a business in common with a view to profit.  It is a matter of fact whether a partnership exists and the parties cannot simply determine this for themselves.  Usually the relationship is governed by a partnership agreement and we would advise that a partnership agreement is always put in place so as to set out the rights and obligations of each of the partners.  However, the essence of a partnership is the continuing relationship between the partners, personal as well as commercial, with the partnership agreement being only an indication of the relationship.

When the courts have to consider whether a partnership exists, they look at the substance of the arrangements and not the stated intentions of the parties.  The partnership has to be carried “with a view to profit” but this does not require that profit should actually be made.

The case

The father claimed that a courier business had been run as a partnership between him and his son, with the son carrying out the work and the father providing business advice based on his years of commercial experience.

The court found that none of the documents submitted in evidence showed that the father had an interest in the business beyond the fact that he had helped his son to set up the business.  Such assistance was not sufficient to create a partnership between the father and the son.

Comment

This case highlights the importance for parties to consider the nature of their business relationship and, if the aim is to work in partnership, put a partnership agreement in place.

Roger Marsh v (1) Simon Cameron Marsh (2) Time Critical Ltd [2010] EWHC 1563 (Ch)