What’s in a comma? A lot of zeroes, sometimes — Law 204/704 developer Peter Kissick joins us to talk about a legendary case involving a comma, utility poles and $2.1 million dollars. That’s a gateway to a broader conversation about contracts: what they are, how they work, and what most of us are getting absolutely wrong.
Is partnership the right business move? Could you be in a partnership without even knowing it? We’re joined by corporate lawyer Peter Kissick, a faculty member here at Queen’s and developer of Law 204/704: Corporate Law for the Certificate in Law. He demystifies one of the central types of business structures, and lays out the advantages — and dangers — of partnership.
Who shares what? Who’s at risk? How can you be in a partnership without meaning to… and how can you get out of it? Peter walks us through all of it in a quick, entertaining overview of what partnerships mean, and why he’s known as the “Angel of Doom” to certain clients, in today’s business context.
Partnership is a foundational element of the law of business organization. To understand a partnership, you have to consider four simple and foundational questions:
When does the partnership exist?
In Ontario the Partnerships Act establishes the basic rules of partnerships. Other provinces and territories have their own partnership regulations, but the principles are usually much the same as Ontario’s. The Partnerships Act defines partnerships as “the relation that subsists between persons carrying on a business in common with a view to profit”. So a few elements must be present for a partnership to exist:
- More than one person must be…
- In a relationship with each other that involves…
- Carrying on a business together…
- With a view to making profit.
This definition is based on the intention of parties, as disclosed by the circumstances. Did two people intend to carry on a business together with a view to making profit? If they did, a partnership will have been created.
The extent of each person’s investment in or, control of the partnership business will not define whether or not the partnership exists.
What is the legal status of the partnership?
A partnership is not recognized as a separate legal entity. It is not legally distinct from the partners that form it. This means…
- Each partner is liable to the full extent of their personal assets for the debts and liabilities of the partnership. This means that if the partnership owes money to a creditor, the creditor can enforce that debt against the personal assets of any partner, not just the assets of the partnership.
- A partner cannot be recognized as an employee of the partnership business. This because no person can enter into a contract with themselves. Because a partnership has no legal existence distinct from the individual partners, it is not possible to be an employee and partner at one firm at the same time because it would involve employing yourself.
- Except in very particular circumstances provided for in the Partnerships Act, a partner can’t be a creditor of their partnership. Again, this is because it isn’t legally possible to contract with yourself, and this includes contracts to lend money.
What are the rights and responsibilities of the partners?
Under the Partnerships Act, there are eight key rights and responsibilities of partners. These rights and responsibilities emanate from the basic assumption that the partners are equal with respect to their capital contributions, rights to participate in the management of the business and rights to share in the profits of the business.
- All partners are entitled to share equally in the capital and profits of the business. They therefore have the responsibility to contribute equally to the losses sustained by the partnership.
- Every partner is entitled to take part in the management of the partnership business.
- New partners may not be added to the partnership without the consent of all the existing partners.
- Changes to the nature of the partnership may not be made without the consent of all the existing partners.
- A partner cannot be removed from the partnership without their consent.
- A partner is jointly liable with other partners for all debts and obligations of the firm as long as they are a partner.
- A partner is an agent of the partnership. This means that they can bind the firm and the other partners when acting in the course of their duties.
- As an extension of their agency, each partner owes a “fiduciary duty” – and duty of good faith – to all other partners.
What are the terms of the partnership?
The rights and responsibilities of a partner as set out above are the baseline rule established by the Partnerships Act. However, one of the most important elements of the law of partnership is that a partnership is a contractual relationship. Partnerships can be as varied as the people who are partners – partners can contract their particular rights and responsibilities, which can be different from the baseline rights and responsibilities established in the Partnerships Act. However, where a partnership contract is silent on a particular issue, the Partnerships Act’s terms for that issue will be implied.
– Isabelle Crew (3L, Faculty of Law, Queen’s University)
It’s a word that is both ubiquitous (sports fans hear nightly about athletes’ multi-million dollar contracts) and for some, scary or intimidating (he needs me to sign a contract about that!). It may be one of the most misunderstood words in the legal lexicon. Let’s consider some myths and misconceptions about contracts.
If it’s not written down, it’s not a contract. False! A contract arises when two people, or two companies (or combinations of both) promise to do something for the other. Like the cable company promising to provide you with Internet service, and you in return promising to pay for such services. Thing is, it is the pair of promises that are generally the only requirement for there to be a contract – and those promises can be written, oral, or even implied by the context! So the writing doesn’t make the contract, the promises do.
OK, but it’s MORE of a contract if it’s written down, right? If the contract is written down, it doesn’t necessarily have more legal weight, but it is a whole lot easier to enforce. Furthermore, it’s a lot easier to determine if you – or the other party – are living up to your obligations if there is a written record to reference.
So do those promises then have to be of equal value; does the contract does have to be fair? Nope. I said earlier that all we needed for a contract was a pair of promises; I didn’t say that exchange had to be a good deal for both people. Fairness, like beauty, can be in the eye of the beholder. Courts don’t examine what is, or is not, a good or fair deal (absent something nasty, say, like fraud). So beware of one-sided contracts – they are still enforceable.
You mean like my cell phone contract, or those annoying “pop ups” whenever I download a new app or operating system? Yes, those. They are called “standard form contracts” and generally they are written to protect the provider of a service (the cell phone provider) from liability. While they may seem a bit one-sided, they do help keep the costs of those services lower for consumers.
Does anybody actually read those agreements? I just click “I accept” so I can get on with life. They aren’t really enforceable against me, are they? Well, why did you click “I accept” if you weren’t accepting the terms of the contract? It’s really no different than signing a contract you didn’t read. Think of that mouse click as being the same as an autograph. You might want to read some of those terms that you’re agreeing to…
So contracts are nothing more than tools big companies use to intimidate consumers? We have been talking about one type of common contract – the standard form contract – but contracts are incredibly useful tools to enhance and protect relationships, especially for small and start-up businesses. They clarify relations, protect expectations and keep people from fighting. And you can learn more about the uses of contracts in LAW 204, Corporate Law!