“We’re in a Partnership?”
Published March 23, 2010
Associated Areas of law
People who operate a business together are sometimes of the view that as long as they do not call themselves “partners,” they will not be a “partnership” and will not be subject to the laws that apply to partnerships. In reality, this is not necessarily true – whether business people are in a “partnership” is determined by the particular business relationship, and not by what the business people call themselves.
According to Nova Scotia’s Partnership Act, there are three features of a partnership – that persons be (i) carrying on a business, (ii) in common, and (iii) with a view to profit. One must consider the facts surrounding a business, as well as the intentions of the parties involved, to determine if these features are present in a business relationship.
“In common” simply means that two or more people, working together, are needed to form a partnership. They must be legally capable of being in a partnership.
“Carrying on a business” means that a business is being conducted. Under the Partnership Act, a wide range of activities are considered to be a business, as “business” is defined as any trade, occupation or profession. Carrying on a business also requires that there is a continuing or ongoing relationship – a one-time service or sale is not likely to result in a partnership.
Lastly, a business relationship must be formed “with a view to profit.” This does not mean that partners must have a flourishing business, but rather means that the business relationship must be for the sake of gain, or with the goal of making money. A failing business can still be “with a view to profit” if the purpose of the business is to work towards success and profits.
In addition to these rules, one should be aware that the Partnership Act excepts several circumstances that, alone, do not create a partnership. For example, the mere fact that people own property together does not mean they are partners – they may be partners, however, if they actively use that property in a business-like manner to earn a profit from it.
If the facts of a business relationship show that it is a partnership, the rules in the Partnership Act will apply. Although partners may make their own agreement about how some aspects of their partnership will operate, many of the Partnership Act’s rules will still apply. The Partnership Act has rules about partners’ obligations to one another and to third parties, and imposes limits on what partners can do. The Partnership Act also has rules about property of the partnership and what must happen when the partnership ends. For partnerships, or business relationships that are potentially partnerships, it is important to become aware of these rules and they will mean for the business.
This article is intended for information purposes only and is not intended to be legal advice. We suggest you contact a legal professional for advice on your particular business and circumstance.