1.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
The essentialia of a partnership agreement include a valid agreement between two or more parties, a common goal or objective, the intention to make a profit, and the sharing of profits and losses. From the scenario provided, it can be inferred that there was a valid partnership agreement between Malvis, Nokuthula, and Clara. They all agreed to contribute something towards the partnership and share the profits and losses in a predetermined ratio.
Malvis contributed his newly acquired brick making machines, Nokuthula contributed his skill of making bricks, and Clara provided the land or premise and facility for the business. These contributions meet the requirement of a valid partnership agreement. Additionally, they all had a common goal to engage in the business of moulding, making, and selling bricks to make a profit.
However, the issue of liability needs to be considered in the establishment of a valid partnership. Partnerships have unlimited liability, which means that the partners are personally liable for the debts and obligations of the business. This means that if the business fails, the partners are responsible for paying off any debts or obligations using their personal assets.
In the scenario provided, the business failed and had a net loss of R1000 000. This means that the partners are liable for the debt incurred by the business. Therefore, if the assets of the business are not enough to cover the debt, the partners will have to use their personal assets to pay off the debt. This means that Malvis, Nokuthula, and Clara will be held personally liable for the debt incurred by the partnership.
In conclusion, a valid partnership was established between Malvis, Nokuthula, and Clara based on the essentialia of a partnership agreement. However, the issue of liability needs to be considered, as the partners are personally liable for the debts and obligations of the business.
To determine whether a valid partnership was established between Malvis, Nokuthula, and Clara, we need to consider the essential elements of a partnership agreement.
1. Agreement: There must be a mutual agreement between the parties to form a partnership. In this case, it is stated that Malvis, Nokuthula, and Clara decided to form a partnership, which indicates their intention to establish a business together. Therefore, this element is satisfied.
2. Common Business: The parties must have a common business with the goal of making a profit. In this case, the common business is the molding, making, and selling of bricks, which is stated in the given information. Therefore, this element is satisfied.
3. Contribution: Each partner must contribute something to the partnership, such as money, property, or skills. It is stated that Malvis contributes his newly acquired brick making machines, Nokuthula contributes his skill of making bricks, and Clara provides the land or premise for the business. Therefore, this element is satisfied.
4. Sharing of Profits and Losses: The partners must agree to share the profits and losses of the business. In this case, it is stated that Malvis will receive 30% of the profits, Nokuthula will receive 20% of the profits, and Clara will receive 50% of the profits. While the given information does not explicitly mention the sharing of losses, it can be presumed that the losses would be shared in the same proportion as the profits. Therefore, this element is satisfied.
Based on the above analysis, it can be concluded that a valid partnership was established between Malvis, Nokuthula, and Clara as all the essential elements of a partnership agreement are satisfied.
Regarding the issue of liability, in a general partnership, each partner is personally liable for the debts and obligations of the partnership. This means that if the partnership incurs a loss, each partner is personally responsible for their share of the loss. In this case, since the partnership had a net loss of R1000 000, each partner would be liable for their agreed upon share of the loss. Malvis would be liable for 30% of the loss, Nokuthula for 20%, and Clara for 50%. Each partner would need to contribute their share of the loss, and if any partner fails to do so, the other partners may have to cover the shortfall.
It is important to note that liability in partnerships can be modified through an agreement between the partners, such as by including provisions for limited liability or obtaining adequate insurance coverage. However, in the absence of any indication in the given information, it can be assumed that the partners have unlimited liability.