PARTNERSHIPS

Learning Unit 2
 Overview

LEGAL NATURE TYPES OF RELATIONSHIPS AND

PARTNERSHIPS AUTHORITY OF
PARTNERS
Partnership
s
Overview:
Notwithstanding the fact that a partnership does not have separate legal personality,
partnerships are still used as a business entity for a variety of reasons. At times business
needs dictate the use of a business structure that is easy to form but is also easy to
terminate. It is therefore not uncommon for businesses to form a partnership with a view
of tendering for a contract, based on a joint venture (JV), with a view of formalising the
business enterprise should the tender be awarded by, for example, incorporating a
company.
Although Vs and partnerships are fairly similar in nature the main difference is that a IV is
usually aimed at a short-term business relationship whereas a partnership envisages a longer
relationship.
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 What is a
Partnership?
Legal Relationship created by way
of a contract between 2 or more
persons
In terms of which each of the
partners agrees to make some
contribution
To the partnership business
Which is carried on for the joint
benefit of the parties
And the object of which is to
make profit.
Natural persons or juristic persons
can enter into partnership
NB. - creation, operation and
dissolution depend on the
agreement between the partners
No perpetual succession
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 Types of
Partnerships

1. Universal Partnership
vs particular
2. Ordinary Partnership
vs extraordinary
partnership

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Universal/Particular partnerships

◦ Universal partnership =partners

contributing all their property or all their profits
to the partnership, usually for an open-ended
period and wide-ranging purposes (sharing of
profits)
◦ Type 1 – Universorum bonorum (marriage in
community of property)
◦ Type 2 – Commercial Activity (everything
acquired is the property of the partnership)
◦ Adcock v Adcock
◦ Particular partnership = temporary and
focused arrangement in terms of which
partners contribute their resources for a
particular defined purpose only and share only
in the profits from the particular project
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together.
Ordinary/Extraordinary
Partnership
◦ Ordinary partnership = partners are jointly and severally liable for all the debts of the partnership
◦ Extraordinary Partnership = liability of some partners limited
◦ (i) Anonymous Partnership
◦ Partnership by which 2 or more persons agree to share in some business which will be conducted by one of them in
their own name and not in the name of the partnership.
◦ Anonymous partner is not disclosed to the public
◦ Cannot be liable to third parties for the debts of the partnership
◦ Only liable to partners as agreed
◦ (ii) Partnership en commandite
◦ Partners not disclosed makes a contribution of a fixed sum of money on condition that he receives a share of the profits
◦ Partner commandite is limited to the amount of agreed contribution vs anonymous is liable for pro rata share of all debt
◦ (iii) Special Partnership
◦ Pre-Union Statute Law Revision Act
◦ Limited liability of a special partner depends on the fact that the name of partner is not disclosed
◦ Partner personally enters into a transaction with a third party
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Essentials of a
Partnership
1. Each Partner contributes to the partnership – money, labour or skill (415)
2. The business is carried on for the joint benefit of the partners
3. The object is to make money
4. Partnership agreement should be legitimate (writing, verbally or conduct)

◦ See Joubert v Tarry and Company

◦ Essentialia of the Partnership Agreement:
◦ Name of the Partnership
◦ Business/Purpose of the Partnership
◦ Roles/Responsibilities of each partner (ID active/passive partners)
◦ Identify the income/capital profit-sharing ratio of each partner
◦ How will the losses be shared?
◦ Which partner contracts on behalf of the partnership
◦ Other special arrangements

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 Legal Nature
• Partnership is not regarded as a
legal person
• Aggregate Theory = collection
of individual parties who are
the owners of the partnership
property
• Partners are co-owners of
property in undivided shares
(as not a legal person,
partnership cannot own
property)
• Change of partner destroys
identity of partnership
• Contrasting theory:
• Entity Theory = partnership is
an entity separate from its
members
• Exceptions: insolvency &
litigation

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Insolvency exception Litigation exception

• Section 13(1)Insolvency Act • Claim by or against Exceptions to

partnership
legal
‘if the court sequestrates • Claim instituted by or
the estates partnership…it against partners at the time personality
shall simultaneously that the cause of action
sequestrate the estate of arises
every member of the of that
partnership’
• Creditors of partnership - Rule 14 of the Uniform
prove claims against Rules of the High Court
partnership estate only Rule 54 of Magistrates
Court
• Creditors of partners – prove • Partnership may be sued in
claims against personal its own name
estate of partners

Balance left from personal

estate open for distribution to
partnership creditors 03/22/2025
 Relationship
between
partners (421)
1. Duty to accept and
fulfil the obligations
of the partnership
agreement
2. Duty to acquire
benefits for
partnership
3. Duty to guard
against a conflict of
interest

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 Relationship
between
partners
Uberrimae fidei:
• Common law – utmost
good faith (standard
of interpretation)
• Relationship based on
mutual trust and
utmost confidence
• Fiduciary relationship
(involuntary reliance)
• Partnership Agreement

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 Rights of
Partners
• Right to share in the
profits of the
partnership
• Right to participate in
the management of
the business
• Right to
compensation
• Right to inspect the
partnership books
• Right to distribution
of assets on
dissolution
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 Duties of
Partners
• Duty to make a
contribution to the
partnership
• Duty to share in the
losses
• Duty of care and skill
• Duty of full disclosure
• Duty to account
• Duty to utmost good
faith

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Authority to Contract

AUTHORITY TO AUTHORITY OF PARTNER PERSONAL LIABILITY OF A

CONTRACT WITH THIRD TO BIND PARTNERSHIP PARTNER
PARTIES

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Authority to contract with third parties
◦ Aggregate Theory of partnership =
◦ when a partner contracts on behalf of the
partnership, the partner acts as principal
in relation to him and as a representative
of the other partners (he acts as an agent
and binds all remaining partners,
provided that he acts within the scope of
his authority
◦ The partner is bound by his authorized
actions and the actions of the other
partners when they also act on behalf of
the partnership
◦ Provision = each partner acts within the
limits of their authority.
◦ A Partner can therefore play a double role
= 1. agent and 2. principal in the same
transaction 03/22/2025
 Authority of
partner to bind
partnership
• Actual Authority – either expressly
granted or implied in dealings with
third parties
• Partnership is bound if partner acts
within this mandate
• General Authority = all transactions
relating to scope of partnership
business
• General rule = each partner will
have the authority to perform all acts
necessary for or incidental to the
proper conduct of the business of the
partnership
• Acts = binding (implied authority
of each partner)
• Dispute – legal test
• IF it can be shown that
transaction falls outside the
scope of the partnership
03/22/2025 business, partner has exceeded
authority
◦ A Partnership is an agreement
◦ Authority may be limited or excluded by express Authority of
agreement partner to bind
◦ NB – if third party is unaware of express limitations,
partnership can be contractually bound. partnership
◦ Rule = third party will be entitled to assume that
contracting partner had implied authority to act on
behalf of the partnership
◦ Awareness of any limitations important!
◦ Ostensible Authority:
◦ Appearance (representation) to the outside world is that
partner is authorized to act on behalf of the partnership
(even if not a partner)
◦ Even though no authority exists, the partnership can be
bound due to an appearance created by the principal

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 Personal
Liability
• Joint and Several
Liability
• Partners are co-
debtors
• Liquidation – first call
is partnership assets
and then personal
assets

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 Dissolution of
a Partnership
1. Lapse of agreed time
2. End of undertaking
3. Mutual Agreement
4. Change in
membership
5. Insolvency of
partnership or any of
it’s members
6. Notice of dissolution
7. Partners become alien
enemies
8. Order of Court
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