Theme 1 – Entrepreneurial Law
Partnerships - SUT 1 - The Law of Partnership
What is a partnership?
A partnership is the coming together of two or more persons who conclude a
partnership contract or agreement with the aim of running a business for the
purposes of making a profit for their joint benefit. All partners should
contribute money, property, services/labour, skills or experience that will be at
the disposal of the partnership for the purposes of running business and all
these are subjected to risk.
Characteristics of a Partnership:
• Formed by a contract agreement
• Aims to make a profit
• Association of at least 2 persons or more
• Not a juristic person (Exception during Litigation and Insolvency)
• Partners bear the risk of the venture
Explanation of exceptions:
In terms of the Insolvency Act 24 of 1936 [sections 13(1) and 49(1)], the private
estate of each ordinary partner is sequestrated simultaneously with, but
separately from, the partnership estate. Separate trustee’s accounts are drawn
up in respect of the partnership estate and the estate of each partner.
Formation of Partnerships
A partnership contract should have all the essentialia which are characteristics
that distinguish it from other contracts.
Essentialia of the partnership contract:
• Each partner must contribute something of value.
• The common business must be carried for joint benefit of partners.
• Purpose is to make profit.
• Intention of parties
, The General Requirements of a Partnership Contract:
1. Consensus - The parties must reach an agreement.
2. Contractual Capacity - The parties must have the legal ability to enter into a
contract.
3. Legality - The contract and its performance must be legal.
4. Physical Possibility - The performance of the contract must be physically
possible.
5. Contractual Formalities - Any required formalities must be complied with.
Rights and Duties of Partners
Rights of Partners
• Profits, Remuneration, Interest, and Indemnity
✓ Partners share net profits.
✓ Interest on capital or remuneration requires agreement.
✓ Partners are indemnified for damages or expenses incurred in their
duties.
• Control and Related Matters
✓ General Management
✓ Access to Partnership Books and Records
✓ Use of Partnership Assets
Duties of Partners
• To Contribute
✓ Partners must make agreed contributions to the partnership.
✓ Specific performance can be ordered for non-performance, except for
service contributions where contract dissolution may apply.
,• To Share in Losses
✓ Partners share losses as agreed or, if not specified, in the same
proportion as profits.
✓ Partners jointly share business overheads and risk of insolvency.
• To Exercise Care
✓ Partners must exercise care and skill as in their private affairs.
✓ Negligent or intentional misconduct causing partnership loss makes a
partner liable for damages.
✓ The standard of care is that of a reasonable person in the partner's
position, with higher expectations for partners contributing specific skills.
• To Maintain Bona Fides
✓ Partners have a fiduciary duty, including disclosure and avoiding conflicts
of interest, from initial negotiations through liquidation.
✓ To Account for and Distribute Profits Personally Made
▪ Partners must share any personal profits obtained from partnership
activities.
▪ Proper records must be kept, and all transactions accounted for.
✓ Other Duties to Disclose
▪ Partners must account for partnership assets in their possession and
disclose information affecting partnership affairs.
✓ No Priority of Own Interests
▪ Partners must not harm partnership interests or undermine co-
partners.
✓ Consequences of Breach
▪ Partners must share business opportunities and benefits obtained
within the partnership scope.
▪ Contracts made in breach of good faith duties are considered made
on behalf of the partnership.
, Litigation Between Partners
• Actio Pro Socio
✓ Partners can use this action to enforce rights among themselves.
✓ Action is brought in the partners' names, not the firm's.
✓ All partners, except one with no interest, must be involved.
✓ Used to enforce partnership agreements or address misuse of
partnership assets.
• Actio Communi Dividundo
✓ Used after partnership dissolution to divide jointly owned property.
✓ Debt prescription is valid for one year post-dissolution.
• Accounting Prerequisite
✓ Profit or loss is calculated for the entire accounting period.
✓ Claims on partnership assets are made only after proper accounting.
• When Legal Proceedings are Instituted
✓ During Partnership
▪ Actio pro socio can be used for claims like damages or share of profits
without dissolving the partnership.
✓ After Dissolution
▪ Claims are based on final accounts.
▪ No further claims can be made after the completion of liquidation.
• Arbitration
✓ Partnerships may have arbitration clauses that mandate resolving
disputes through arbitration rather than court, excluding actio pro socio.
Partnerships - SUT 1 - The Law of Partnership
What is a partnership?
A partnership is the coming together of two or more persons who conclude a
partnership contract or agreement with the aim of running a business for the
purposes of making a profit for their joint benefit. All partners should
contribute money, property, services/labour, skills or experience that will be at
the disposal of the partnership for the purposes of running business and all
these are subjected to risk.
Characteristics of a Partnership:
• Formed by a contract agreement
• Aims to make a profit
• Association of at least 2 persons or more
• Not a juristic person (Exception during Litigation and Insolvency)
• Partners bear the risk of the venture
Explanation of exceptions:
In terms of the Insolvency Act 24 of 1936 [sections 13(1) and 49(1)], the private
estate of each ordinary partner is sequestrated simultaneously with, but
separately from, the partnership estate. Separate trustee’s accounts are drawn
up in respect of the partnership estate and the estate of each partner.
Formation of Partnerships
A partnership contract should have all the essentialia which are characteristics
that distinguish it from other contracts.
Essentialia of the partnership contract:
• Each partner must contribute something of value.
• The common business must be carried for joint benefit of partners.
• Purpose is to make profit.
• Intention of parties
, The General Requirements of a Partnership Contract:
1. Consensus - The parties must reach an agreement.
2. Contractual Capacity - The parties must have the legal ability to enter into a
contract.
3. Legality - The contract and its performance must be legal.
4. Physical Possibility - The performance of the contract must be physically
possible.
5. Contractual Formalities - Any required formalities must be complied with.
Rights and Duties of Partners
Rights of Partners
• Profits, Remuneration, Interest, and Indemnity
✓ Partners share net profits.
✓ Interest on capital or remuneration requires agreement.
✓ Partners are indemnified for damages or expenses incurred in their
duties.
• Control and Related Matters
✓ General Management
✓ Access to Partnership Books and Records
✓ Use of Partnership Assets
Duties of Partners
• To Contribute
✓ Partners must make agreed contributions to the partnership.
✓ Specific performance can be ordered for non-performance, except for
service contributions where contract dissolution may apply.
,• To Share in Losses
✓ Partners share losses as agreed or, if not specified, in the same
proportion as profits.
✓ Partners jointly share business overheads and risk of insolvency.
• To Exercise Care
✓ Partners must exercise care and skill as in their private affairs.
✓ Negligent or intentional misconduct causing partnership loss makes a
partner liable for damages.
✓ The standard of care is that of a reasonable person in the partner's
position, with higher expectations for partners contributing specific skills.
• To Maintain Bona Fides
✓ Partners have a fiduciary duty, including disclosure and avoiding conflicts
of interest, from initial negotiations through liquidation.
✓ To Account for and Distribute Profits Personally Made
▪ Partners must share any personal profits obtained from partnership
activities.
▪ Proper records must be kept, and all transactions accounted for.
✓ Other Duties to Disclose
▪ Partners must account for partnership assets in their possession and
disclose information affecting partnership affairs.
✓ No Priority of Own Interests
▪ Partners must not harm partnership interests or undermine co-
partners.
✓ Consequences of Breach
▪ Partners must share business opportunities and benefits obtained
within the partnership scope.
▪ Contracts made in breach of good faith duties are considered made
on behalf of the partnership.
, Litigation Between Partners
• Actio Pro Socio
✓ Partners can use this action to enforce rights among themselves.
✓ Action is brought in the partners' names, not the firm's.
✓ All partners, except one with no interest, must be involved.
✓ Used to enforce partnership agreements or address misuse of
partnership assets.
• Actio Communi Dividundo
✓ Used after partnership dissolution to divide jointly owned property.
✓ Debt prescription is valid for one year post-dissolution.
• Accounting Prerequisite
✓ Profit or loss is calculated for the entire accounting period.
✓ Claims on partnership assets are made only after proper accounting.
• When Legal Proceedings are Instituted
✓ During Partnership
▪ Actio pro socio can be used for claims like damages or share of profits
without dissolving the partnership.
✓ After Dissolution
▪ Claims are based on final accounts.
▪ No further claims can be made after the completion of liquidation.
• Arbitration
✓ Partnerships may have arbitration clauses that mandate resolving
disputes through arbitration rather than court, excluding actio pro socio.
