What is the definition of an implied business partnership?
Full Question:
Answer:
A business partnership consists of a contract between two or more people
in a joint business who agree to pool their funds and talent and share in the
profits and losses of the enterprise. The first element of a partnership is a
contract among the partners. This contract may be either express or implied
and may be written or oral.
Certain conduct may lead to the creation of an implied partnership.
Generally, if a person receives a portion of the profits from a business
enterprise, the receipt of the profits is evidence of a partnership. If,
however, a person receives a share of profits as repayment of a debt,
wages, rent, or an annuity, such transactions are considered "protected
relationships" and do not lead to a legal inference that a partnership exists.
The courts have encountered difficulty in determining whether a partnership
exists and in setting forth a precise test for that purpose. Courts applying
common law as well as the Uniform Partnership Act recognize that no one
fact or circumstance is a conclusive test of partnership, nor is it possible to
state any number of facts decisive in all cases. There are no hard and fast
rules, and arbitrary tests are not useful. Each case must be decided under its
peculiar facts, considering the totality of all relevant facts and circumstances.
In short, substance and not form should be the controlling criterion in
determining the nature of a business relationship as a partnership.
The existence of a valid partnership must be proved by any competent
evidence, and is not limited to direct evidence. Participation in the profits of a
business is cogent evidence of a partnership, and in the absence of certain
specified exceptions, the fact that one receives a share of the profits
constitutes prima facie evidence that he is a partner, though an agreement
to share profits alone is not conclusive evidence of the existence of a
partnership.
The question of whether a partnership exists between particular persons is a
mixed question of law and fact. This means that what constitutes a
partnership under established facts is a question of law for the court, but the
existence of the facts necessary to bring the relation within the tests of
partnership, or the determination whether a partnership exists under the
evidence and the inferences reasonably drawn from the evidence, is a
question of fact for the jury.
The absence of a written contract of partnership is not conclusive of
whether a partnership exists, but is an element for serious consideration.
The lack of partnership documentation is not a critical factor. The existence
of a partnership may be proved without a writing by transactions, conduct,
and declarations.
Partnership books and accounts or financial statements prepared on behalf
of a firm are admissible as proof of a partnership, provided the party against
whom they are offered authorized or ratified them, or can be shown to
have been legally responsible for them. An inference of partnership cannot
be drawn from bookkeeping entries which indicate that one who claims he is
a partner is treated on the books as an employee but is unable to read or
write, there being no reasonable basis for concluding that the party
understands the significance of the records pertaining to him and the
unilateral accounting practices of the other party.
A security agreement with a bank, identifying a purported partner as the
named debtor, showing that he does business under the partnership name,
and signed by the purported partner alone, constitutes proof of his
involvement in the partnership, particularly when he similarly signs later
security agreements.
Written instruments in the form of credit applications may be admissible as
proof of partnership and the parties' representations of partnership to
others, if made in the course of business, but only after it is shown prima
facie that there is a partnership.
A letter requesting credit on behalf of a firm and signed by both purported
partners may be evidence of the parties' partnership. Similarly, letters are
admissible to show a party's admission that he was promised a percentage
of the business operation in question, and to indicate that he exercised
control over the practices of the business on a daily basis, thus tending to
establish the existence of a partnership.
Insurance policies, endorsements, or applications for insurance coverage are
admissible as relevant to whether a partnership exists among the parties on
whose behalf the documents are prepared or issued, though not conclusive
or determinative of the issue, particularly in the face of other business
reasons for joint coverage besides the existence of a partnership.
Federal tax returns which show a person or entity as receiving profits from a
business generally are considered prima facie evidence that the person or
entity is a partner in the business to which the returns relate, as are tax
returns showing a partnership filing status. The filing of a partnership tax
return is also characterized as creating a presumption of partnership, as
pertinent to establishing its existence, or as significant evidence of
partnership under state and federal income tax laws that permit a business
partnership return to be filed only on behalf of an enterprise created to carry
on a business. A partnership tax return is a significant admission against
interest by one subsequently attempting to deny the existence of a
partnership, since even assuming that partnership tax returns are used for
nonpartnership ventures or firms, the formal tax treatment of business
income as shared partnership income is not stripped of probative value and
remains prima facie evidence of partnership.
The absence of proof that parties file partnership tax returns is indicative
that a partnership relation does not exist between them, and the filing of
individual tax returns by the parties to a purported partnership agreement
indicates the parties' intent not to enter a partnership.
The testimony of professionals, including accountants and attorneys with
whom members of an alleged partnership deal in their business relations,
may serve to indicate the true nature of the parties' relationship and
whether the parties in fact came to a meeting of the minds in forming an
intention to become a partnership. For example, the testimony of an
attorney who prepared a written agreement among parties, revealing that
their agreement was to create a general partnership, sufficed to help
establish the partnership.
When the parties have not clearly indicated whether or not their business
constitutes a partnership, the law has determined several guidelines to aid
Courts in determining whether the parties have created a partnership.
The fact that the parties share profits and losses is strong evidence of a
partnership. An agreement that does not provide for sharing losses, but
does provide for sharing profits, is still evidence of a partnership since it is
assumed that the parties will also share losses.
The sharing of gross revenue is itself very slight, if any, evidence of a
partnership. The text gives an example of a situation where a farmer rents
an airplane to a pilot to do crop dusting under an agreement where the pilot
would pay the farmer, as compensation for use of the plane, a share of the
fees that the pilot receives from his crop dusting business. Such an
arrangement would not constitute a partnership in and of itself.
Co-ownership of property does not necessarily create a partnership. Also,
sharing profits or rents from property that two or more people own does
not necessarily create a partnership.
