3.4.1 What is a partnership?
Persons who run a business together are said to be in partnership. Partnership is the second form of business organisation at which we shall look, and we will explore what a partnership is, in the eyes of the law, in the next activity.
Activity 6: Nature of a partnership
Suppose you had set up a business buying and selling second-hand cars with two friends, and you decided to call it ‘Yew, Hymn and Hurr, Car Dealers’. Please read s. 1 (1) of the Partnership Act 1890 as set out below to determine whether you would be ‘in partnership’ with your two friends.
The Partnership Act 1890, s. 1 (1), provides that:
Partnership is the relationship which subsists between persons carrying on a business in common with a view of profit.
This wording means that, were you to run your second-hand car business together, you would indeed be in partnership with your friends: the appropriate relationship would subsist between you. Note that the existence of a partnership would not depend on any agreement to that effect between you and your friends; it would be enough that you carried on the business together with a view to making a profit. Whether or not you thought of yourselves as partners, you would still be partners in the firm of ‘Yew, Hymn and Hurr, Car Dealers’. (The word ‘firm’ is used to refer to the partners collectively.)
You should also note that the word ‘firm’ is often used in a non-technical way to mean any form of business organisation. Here, however, we are using it in a more technical sense to mean the partners in a partnership, and it is preferable to stick to that sense of the term.