Two barbers, X and Y, co-own Barbershop Z.
Are they co-owners, or are they partners? They call each other partners, so surely that means they’re partners.
Wrong.
It is my argument that although many of the provisions of the alleged “partnership agreement” do indeed point toward a finding of partnership, a purposive look at the rest of the provisions provides a different picture.
As to the parties referring to each other as partners, Westlock is particularly useful. In Westlock the court ruled that intentions are important, but non-conclusive. Referring to each other as partners is a step toward partnership, but hardly a leap into that end zone. It is impossible to tell the educational or experiential backgrounds of the barbers, but for the common layperson, a partnership could simply imply two people who work together. X and Y share a working space, and that could be enough for them to think they are partners. It is perhaps more insightful to look not to the language of the agreement to ascertain the parties’ intentions, but to the results.
To that end, Kamex is informative. The courts had to decide if the parties in question had an “intention to carry on a business” or were merely providing an agreement for the regulation of their rights and obligations as co-owners. I would argue that X and Y are not carrying on a business, singular, but are rather carrying on two separate businesses under the same roof: There is no sharing of profits. Each party keeps the proceeds of their own efforts, less lease obligations (2.2, 2.3, 2.9); Each party can advertise separately (2.8); Each party can sell whichever product they please, as long as it is hair-related (2.6); And finally, each party is responsible for his or her own tax obligations (2.10).
The BC Partnership Act at s. 27(e) says that all partners can take part in the management of the partnership’s business. However, we can see in the present case that the parties have no such ability. The provisions detailing specific days of operation (2.2, 2.3), restrictions on resale merchandise (2.6), financial obligations (2.9, 2.10) and the additional proviso that each party must keep the premises clean (2.7), are simply regulations on rights and obligations of the parties as co-owners. The day-to-day affairs of each party is sovereign.
Pooley tells us that if the parties enjoy the benefits of partnership, then they should also be burdened with the corresponding responsibilities. However, in the present case, each party, unlike in Pooley, has very little say in the way the other runs their own business, aside from “keep it clean.” Additionally, neither party, aside from the money required to pay half the lease, has any interest in the other party’s capital. The money that each party makes is their own.
For these reasons, I would argue that the parties are operating separate businesses in a co-owned space.
Great analysis of the problem, Kelly (and kudos for your relevant choice of meme). You’ve covered basically all of what I noticed about the problem; I would agree with your assessment that the parties’ obligations and responsibilities to the management of the business are minimal, which bolstered my assumption that this is not a partnership.
A side note: when considering the problem, I was also looking to the responsibilities of the parties in the context of what the barbershop duet’s business would look like in the absence of a partnership. Section 33 of the BCPA notes that in a partnership, “[i]f a partner, without the consent of the other partners, carries on any business of the same nature as and competing with that of the firm, the partner must account for and pay over to the firm all profits made by him or her in that business.” If this were a partnership, then, if X unilaterally decided that he wanted to branch out into the hair care world on Mondays, Wednesdays, and Fridays and began a similar arrangement at the salon down the block on those days, he would probably owe business Z his profits.
This wouldn’t make a lot of sense given the fairly laissez-faire relationship between the parties here with regard to anything other than the capital required to keep up their basic business and property costs, so in that practical sense I agree with your ultimate analysis. (Plus, with the cost of rent in Vancouver, X should really be allowed to take on a part-time barbershop gig elsewhere!)
I think this is on point in regard to the internal legal aspects of the problem. One thing that I can’t get my mind around is how/if partnerships (and corporations by extension) address the problem of the external customer/consumer.
What I mean is a situation where: 1) this is not a partnership in which the partners owe fiduciary duties to one another, 2) the customer doesn’t know this isn’t a partnership because they assume a business operating under a single property/name is a single business, and 3) the customer is prejudiced by one or another person within this “non-partnership” business. How does the law address this issue?
First, why is this an issue? It seems intuitively unfair that a customer who relied on past good business of one of the members of the business, comes in on the wrong day, and receives inadequate business from the other member should not have recourse. It might be that the recourse is just personally against the single person who provided the lesser business. But what if that business was not necessarily “inadequate”, but merely lesser than the familiar person to a point that leads to, for instance, fewer profits for the customer? Then, the customer would not (at least as far as I know) have recourse against that person, despite the fact that they could have theoretically waited to do business with the person they knew, or gone elsewhere.
Ignoring the potential contract law options (or, I suppose, consumer protection) and the improbability of this problem in the context of a barbershop, what is the implication for corporate and/or partnership law here? Should it have a role?
In my view, corporate law and partnership law, at the very least, needs to have a greater consideration of the actors external to the form itself.
Great meme choice. 10/10 would read again.