Malvis, Nokuthula and Clara decide to form a partnership. They wish to engage in the business of moulding, making, and selling bricks. They agree that Malvis will contribute his newly acquired brick making machines for the purpose of producing bricks. Nokuthula who is a certified brick maker will contribute his skill of making bricks, whilst Clara would provide the land or premise and facility upon which to establish the brick making business. They further agree that Malvis will receive 30% of the profits, Nokuthula will receive 20% of the profits and Clara will receive 50% of the profits. Due to the current economic challenges including lack of reliable electricity supply, volatile rand and liquidity, the business fails and has a net loss of R1000 000.
With reference to the essentialia of a partnership agreement, discuss whether a valid partnership was established between Malvis, Nokuthula and Clara. In your answer consider how the issue of liability will be dealt with.
Essentialia of a Partnership Agreement:
According to South African law, a partnership agreement must contain the following essentialia to be considered valid:
1. The partnership must have a lawful objective or purpose;
2. The partners must agree to carry on the business of the partnership together;
3. The partners must contribute to the partnership;
4. The partnership must have a juristic persona;
5. The partners must share in the profits and losses of the partnership.
Discussion:
From the facts provided, we know that Malvis, Nokuthula, and Clara have agreed to form a partnership to engage in the business of moulding, making, and selling bricks. Malvis has contributed his newly acquired brick making machines, Nokuthula has contributed his skill of making bricks, and Clara has provided the land or premise and facility upon which to establish the brick making business. Therefore, it seems that they have fulfilled the essentialia of contributing to the partnership and agreeing to carry on the business of the partnership together.
Additionally, they have agreed to share in the profits and losses of the partnership, with Malvis receiving 30%, Nokuthula receiving 20%, and Clara receiving 50%. Therefore, it seems that they have also fulfilled the essentialia of sharing in the profits and losses of the partnership.
However, there is no mention of whether the partnership has a lawful objective or purpose. It is assumed that the business of moulding, making, and selling bricks is a lawful objective, but it is not explicitly stated. It is also not clear if the partnership has a juristic persona, which is necessary for the partnership to enter into contracts, sue, and be sued.
Regarding liability, partners in a partnership are jointly and severally liable for the debts of the partnership. This means that each partner is liable for the full amount of the debts incurred by the partnership, not just their portion. Therefore, if the partnership incurs a net loss of R1000 000, each partner is liable for the full amount of the debt.
Conclusion:
Based on the information provided, it seems that a valid partnership was established between Malvis, Nokuthula, and Clara. However, there are unclear aspects such as the partnership's lawful objective or purpose and whether the partnership has a juristic persona. Additionally, each partner would be jointly and severally liable for the debts of the partnership, including the net loss of R1000 000.
To determine whether a valid partnership was established between Malvis, Nokuthula, and Clara, we need to examine the essential elements of a partnership agreement, which are:
1. Agreement: There must be an agreement between the parties to form a partnership. In this case, Malvis, Nokuthula, and Clara agreed to form a partnership to engage in the business of moulding, making, and selling bricks. So, the first element is satisfied.
2. Common Business: The parties must have a common goal or business objective. Here, the common business objective is the production and sale of bricks. Therefore, the second element is also satisfied.
3. Sharing of Profits and Losses: There must be an agreement to share profits and losses. In this case, the parties agreed that Malvis would receive 30% of the profits, Nokuthula would receive 20% of the profits, and Clara would receive 50% of the profits. Although the business suffered a net loss, the agreement still covers the sharing of losses. So, the third element is satisfied.
4. Mutual Agency: Each partner must have the authority to act on behalf of the partnership and bind the other partners. The scenario does not provide information on mutual agency, but it can be assumed that each partner has the authority to act on behalf of the partnership, considering they all contribute something essential to the business. Thus, the fourth element is likely satisfied.
Considering the fulfillment of the above essential elements, there appears to be a valid partnership established between Malvis, Nokuthula, and Clara.
Regarding liability, in a general partnership, each partner is personally and jointly liable for the debts and obligations of the partnership. This means that if the partnership incurs a loss or debt, the partners are collectively responsible for settling it. In this case, the business incurred a net loss of R1,000,000. Therefore, Malvis, Nokuthula, and Clara would be jointly liable for the full amount of the loss. Each partner is responsible for contributing their share of the loss based on the agreed profit-sharing ratios (30% for Malvis, 20% for Nokuthula, and 50% for Clara).