Transcript CHAPTER 25 PARTNERSHIPS AND INCORPORATED ASSOCIATIONS At the end of this topic you should know: Partnerships • what constitutes a partnership; • the circumstances in.

CHAPTER 25
PARTNERSHIPS AND INCORPORATED ASSOCIATIONS
At the end of this topic you should know:
Partnerships
• what constitutes a partnership;
• the circumstances in which one partner can bind other
partners in contract;
• the circumstances in which a partner can be liable in
contract or tort;
• the legal duties partners owe to other partners; and
• how a partnership can be dissolved and the rights and
liabilities of partners upon dissolution.
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CHAPTER 25
Incorporated associations
• the characteristics and disadvantages of an
unincorporated not-for-profit association;
• what constitutes an incorporated association;
• how to register an incorporated association;
• the basic structure and management of an incorporated
association;
• the ongoing regulatory requirements;
• the rights and duties of members; and
• how an incorporated association can be wound up and
what happens to any surplus assets.
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Introduction
Definition
Legal Basis
A partnership is a relationship between people who carry
on business in common with a view to making a profit.
The “people” can be either individuals, companies or other
bodies corporate.
A partnership is essentially a matter of contract.
The individual partners enter into a contract (the
partnership agreement) as to how they will conduct the
partnership business.
Subject to any contrary statutory provisions, the mutual
rights and obligations of each partner are governed by this
agreement.
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Legal Basis
Statutory Regulation
A partnership agreement may be:
• a formal written agreement;
• partly in writing and partly oral; or
• may be purely oral or wholly or partly implied from
the conduct of the partners.
Each State and Territory has its own legislation
governing partnerships.
The partnership Acts expressly provide that the preexisting rules continue to apply except in so far as
they are inconsistent with the Partnership Acts.
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Formation
Legal Nature
Forming a partnership does not involve any initial
formalities, such as registration, other than the need
to obtain an ABN and there are no ongoing
requirements to lodge returns of any kind (although a
partnership tax return would be completed).
A partnership is a relationship, it is not a separate
legal entity, although, for procedural convenience,
Rules of Court allow a partnership to sue or be sued
in the partnership or firm name, and is required to
lodge a tax return to ascertain each partner’s share of
profit or loss.
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Legal Nature
Section 115 allows a partnership to have a maximum
of 20 members, but there are exceptions for
professional partnerships: see [25.50].
A partnership does not exist unless each of the
elements in the statutory definition is satisfied. The
definition requires there to be:
• an existing relationship;
• between persons who are;
• carrying on a business in common; and
• have a view to profit.
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Partnerships and Outsiders
Authority of a Partner
Transactions entered into by one partner which are
within the usual scope of the firm’s business will
normally bind both the firm and the other partner(s).
The exceptions are:
• if the partner was acting without authority and the
other party knows this; or
• the other party does not know or believe that he or
she is a partner in the business.
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Liability of Partners in Contract
Liability of Partners in Tort
Limited Partnerships
In contract, each partner is liable jointly with all the
other partners for debts incurred by the firm while he
or she is a partner.
In contrast, partners are jointly and severally liable in
tort.
A limited partnership consists of general and limited
partners and allows for some partners to have
unlimited liability jointly and severally whilst other
“limited partners” are investors in the partnership.
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Holding Out a Person as a Partner
Partners and people who hold themselves out as
partners, or who consent or acquiesce to being held
out, may be liable in contract or tort if:
• there is representation that the person is a partner,
either by that person or by someone else;
• credit is given to the firm; and
• that credit is given in reliance on that
representation.
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Relationship Between Partners
A fundamental principle of partnership law is that a
partnership is a fiduciary relationship based on
mutual trust and confidence between partners:
Birtchell v Equity Trustees, Executors & Agency Co
Ltd (1992).
As fiduciaries, partners have mutual rights and duties
which generally require them to act in good faith and
for the common good of the partnership.
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Partnership Property
Liability of Incoming and Outgoing Partners
The basic rule is that all property that was originally
brought into a partnership, or is acquired by it later, is
partnership property.
In the absence of any intention, any property that is bought
with partnership money will be deemed to have been
bought for the partnership.
Subject to any agreement to the contrary, an outgoing
partner will still be liable for all debts and obligations
incurred while he or she was a partner, and an incoming
partner will only be liable for debts incurred after joining the
firm.
Until notice is given, a person is entitled to treat all
apparent members of the firm as partners.
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Termination and Dissolution
Consequences of Dissolution
A partnership is a contractual relationship so, unless
the partnership agreement provides otherwise, a
partnership will be automatically dissolved if a partner
retires, dies or becomes bankrupt.
A partnership may also be dissolved by a court on the
application of one or more partners.
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Consequences of Dissolution
In the absence of agreement, the following priority
rules are to be followed in distributing assets:
1. Debts and other external liabilities;
2. Repayment of advances;
3. Repayment of capital; and
4. Any remaining assets are shared in the same
proportion as the partners had shared profits.
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Principles –
Incorporated Associations
Not-for-profit Associations
A not-for-profit (or non-profit) association is a group of two
or more people who have agreed to join together to pursue
a common lawful purpose of some kind, such as: social or
sporting clubs; artistic and learned societies; trade and
professional associations; educational, religious, or
charitable organisations; and associations formed to
promote cultural, environmental or other purposes intended
to benefit the community.
In contrast to a partnership, a not-for-profit association is
not formed for the purpose of trading or carrying on
business, and any profits which may result from its
activities must be used for the purposes of the association.
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Partnership v Not-for-profit Organisations
Partnership
Not-for-profit association
Relationship between people who
carry on business in common
Relationship between people
associated together for a nonbusiness purpose
Carried on with a view to profit
Carried on for not-for-profit purposes
Profits divided among the partners
Any distribution of profit to members
prohibited
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Common Difficulties
Lack of Legal Status
Limitations
An unincorporated not-for-profit association is not a
separate legal entity. For legal purposes, it is nothing
more than an aggregate of its members at any
particular time.
An unincorporated not-for-profit association cannot:
• buy or own property;
• enter into a contract or be liable in tort;
• sue or be sued; or
• receive a gift, be a beneficiary of a trust or be left
property by will.
It can only act through its members.
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Lawsuits
Member Rights
Dissolution
Where possible the committee members, as the persons
mainly responsible for the operations of an association, have
been held personally liable in contract (and in some cases
also in tort) for the actions of the association: Bradley Egg
Farm Ltd [1943].
Unless a member’s trade, profession or livelihood was at
stake, as in the case of a professional or semi-professional
sportsperson, courts have usually refused and may still
refuse to accept jurisdiction to hear internal disputes.
In circumstances where an association has no members but
has a bank account or property, the intervention of the court
would be required for an orderly and appropriate distribution:
Master Grocers’ Association of Victoria (1983).
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Incorporation of an Association
Incorporation by registration under the Associations
Incorporations Acts is the most popular method of
incorporation for not-for-profit associations.
In contrast to the national regulatory scheme put in
place by the Corporations Act, each State and
Territory has a separate regulatory regime for
incorporated associations.
Although the Association Incorporation Acts are not
uniform, the basic features of most of them are
similar.
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Unincorporated v Incorporated Associations
Unincorporated
Incorporated
No status as a separate legal entity
Body corporate
Cannot buy or own property, enter
into contracts, sue or be sued, be
the donee of a gift etc
Has perpetual succession (ie, is not
dependent on the existence of
members), can own property, make
contracts, sue and be sued etc
Members have limited liability
Liability of members limited to
subscription unless rules provide
otherwise
Committee members liable in
contract and in some cases tort
The association is normally liable in
contract and tort
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Unincorporated v Incorporated Associations
cont…
Unincorporated
Incorporated
The members can conduct affairs in
privacy  no regulation
May be difficult for members to
enforce their rights
No financial accountability
Subject to the regulatory regime in
the relevant State Act
Some statutory protection of
members’ rights
Required to keep proper accounts
and lodge financial returns
Dissolution and distribution of assets Winding up and distribution of assets
as decided by the members
controlled by the relevant State Act
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Eligibility
An association:
• must be formed for a lawful, not for profit purpose;
• subject to some limited exceptions, must not be
formed for trading purposes or to secure a
pecuniary profit for its members; and
• must have the minimum number of members (five
to seven) required by the statute.
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Incorporation Procedure
The steps required are:
1. Members authorise a person to lodge an
application for registration;
2. Approve a statement of purposes;
3. Choose a name which complies; and
4. Lodge an application together with the statement
of purposes (if required), and rules (if any).
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Consequences of Incorporation
Once a certificate of incorporation is granted, an
incorporated association is a body corporate and so
is a separate legal entity.
In circumstances where an incorporated association
breaches the fundamental prohibition against or
securing pecuniary profit for its members, the
members may lose the protection of limited liability
and be personally liable for any debts incurred.
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Constitution and Management
The constitution of an incorporated association in
Victoria is made up of two documents:
1. a statement of purposes which sets out the
objects and purposes of the association; and
2. rules to regulate its internal affairs.
An association may adopt its own rules or may
choose to rely wholly or partly on the Model Rules.
The Model Rules operate as default rules and, like
replaceable rules for companies, apply automatically
unless excluded.
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Public Officer
Continuing Requirements
The public offer of an association is the point of
contact between the association, the government and
the community generally and is responsible for
ensuring that the association complies with any
ongoing regulatory requirements.
An incorporated association must:
• lodge details of any changes to its name or rules;
• comply with basic standards requiring it to keep
adequate and accurate accounts and financial
records; and
• lodge financial returns.
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Restructuring Associations
Transfer of Incorporation
A not-for-profit association may voluntarily transfer to
one of the Association Incorporation Acts.
An incorporated association may voluntarily transfer
to another statutory regime.
The Registrar may direct it to transfer its registration
to another statutory regime on the grounds that its
continued incorporation as an association would be
inappropriate or inconvenient.
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Member Rights
The courts have traditionally been very reluctant to
intervene in the internal affairs of any associations,
regardless of whether an association was
incorporated or not. The exceptions were:
• where the members had a proprietary right or
interest in an association’s property – members of
an incorporated association do not have such
rights; or
• where a member’s trade, profession or livelihood
was involved, as with trade or professional
associations or professional or semi-professional
sporting bodies.
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Member Rights
In Victoria and some other jurisdictions, the members
also have a statutory right to go to the court for an
order which:
• directs that the rules be observed; or
• declares and enforces the rights or obligations of
the members amongst themselves, or of the
members and the association.
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Cancellation, Winding Up, Distribution
Most Associations Incorporation Acts include an
administrative power to initiate a procedure leading to
the cancellation of the registration of an incorporated
association that appears to be defunct.
An incorporated Association may be wound up:
voluntarily; by order of the court; and in some
jurisdictions on the certificate of the registrar or other
appropriate official.
In most jurisdictions, the Incorporated Association
Acts: prohibit any distribution of surplus assets to the
members of the former association; and impose a
varying degree of judicial control over any other
proposed disposition.
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