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 an agreement to carry on a business, a sharing of profits and losses, and a mutual agency or trust relationship between the partners.
In this case, Malvis, Nokuthula, and Clara have all agreed to engage in the business of moulding, making, and selling bricks and have established the necessary contributions of machines, skill, and land or premise. They have also agreed on the sharing of profits and losses, with Malvis receiving 30%, Nokuthula receiving 20%, and Clara receiving 50%.
Thus, it can be concluded that a valid partnership was established between Malvis, Nokuthula, and Clara.
However, the issue of liability needs to be considered. In a partnership, each partner is jointly and severally liable for the debts and obligations of the partnership. This means that if the business fails and has a net loss of R1 000 000, each partner will be liable for the entire amount.
Therefore, Malvis, Nokuthula, and Clara will each be responsible for paying the full R1 000 000, unless otherwise stipulated in their partnership agreement or unless they can negotiate payment arrangements with their creditors. It is important for partners to understand the potential liabilities involved in a partnership and to structure their agreement accordingly.
To determine whether a valid partnership was established between Malvis, Nokuthula, and Clara, we need to consider the essential elements of a partnership agreement. These essential elements include:
1. Agreement: There must be a mutual agreement between the parties involved to form a partnership. In this scenario, it is stated that Malvis, Nokuthula, and Clara decided to form a partnership. This indicates the presence of an agreement.
2. Business Purpose: There must be a common business purpose for the partnership. In this case, the common purpose is to engage in the business of moulding, making, and selling bricks. The scenario clearly states this intention, fulfilling the requirement of a business purpose.
3. Contribution: Each partner must contribute something of value to the partnership. Malvis contributes his newly acquired brick making machines, Nokuthula contributes his skill of making bricks, and Clara provides the land and facility. These contributions meet the requirement of each partner contributing something of value.
4. Sharing of Profits and Losses: The partners must agree on how the profits and losses of the business will be shared. In this case, Malvis will receive 30% of the profits, Nokuthula will receive 20% of the profits, and Clara will receive 50% of the profits. While it does not specifically mention the sharing of losses, it can be inferred that they would be shared in the same proportions as the profits.
Based on these essential elements, it can be concluded that a valid partnership was established between Malvis, Nokuthula, and Clara.
Now, regarding the issue of liability, it is important to note that in a general partnership, partners have unlimited liability. This means that the partners are personally responsible for the debts and obligations of the partnership.
In the scenario, it is mentioned that the business failed and incurred a net loss of R1,000,000. This liability would be shared among the partners according to their profit-sharing ratios. Malvis would be liable for 30% of the losses, Nokuthula for 20%, and Clara for 50%.
It is important to consult the partnership agreement, as there may be specific provisions regarding the distribution of losses or liability protections. However, if no such provisions are mentioned in the agreement, the partners would be personally liable for the debts and obligations of the partnership.
To determine whether a valid partnership was established between Malvis, Nokuthula, and Clara, we need to analyze the essential elements of a partnership agreement and how they apply to the given scenario.
1. Agreement: There must be an agreement between the parties to form a partnership. In this case, Malvis, Nokuthula, and Clara decided to form a partnership to engage in the business of moulding, making, and selling bricks. This requirement is met.
2. Sharing of Profits and Losses: Partners must agree to share the profits and losses of the business. According to the agreement, Malvis would receive 30% of the profits, Nokuthula would receive 20% of the profits, and Clara would receive 50% of the profits. This requirement is also met.
3. Mutual Agency: Partners must have the authority to bind the partnership and make decisions on its behalf. The given information does not explicitly mention this aspect, but it can be inferred that each partner would have the authority to make decisions related to their respective contributions (machines, skill, land, etc.) for the business. Therefore, mutual agency is likely present.
4. Common Business: Partners must have a common business goal or purpose. In this case, the common business goal is to engage in the business of moulding and selling bricks. This requirement is met.
Based on the above analysis, it can be concluded that a valid partnership was established between Malvis, Nokuthula, and Clara. The essential elements of a partnership agreement, such as agreement, sharing of profits and losses, mutual agency, and a common business goal, are all present.
Now, let's discuss how the issue of liability will be dealt with. In a partnership, partners are jointly and severally liable for the debts and obligations of the partnership. This means that each partner is personally responsible for the partnership's debts and can be held liable for the entire amount.
In the given scenario, the business failed and incurred a net loss of R1000 000. As a result, all partners, including Malvis, Nokuthula, and Clara, will be jointly and severally liable for the loss. This means that each partner may be required to contribute funds to cover the loss, regardless of their individual profit shares.
It is important to note that liability in a partnership extends beyond the partnership's assets, which means personal assets of the partners can be used to satisfy the partnership's debts. Therefore, all partners should be aware of the potential financial risks and liabilities associated with a partnership.