This post is in regard to this week’s Discussion Activity regarding the barbershop. The agreement is between two barbers (X and Y) as to how they will conduct Z. While the agreement describes X and Y as “each Partner” in sections 2.7 through 2.10, there may be more than meets the eye.
A partnership is defined as a relationship between two or more persons carrying on business in common with a view of profit. The three ingredients discussed are 1) business, 2) carried on in common, and 3) for a profit. Ingredients one and three seem fairly evident from the agreement, however the issue turns on whether the barbershop is carried on in common. The question becomes whether this is actually a partnership or something more akin to a common property. Section 3(1) of the Ontario Partnerships Act states that a “joint property… does not of itself create a partnership… whether the tenants or owners do or do not share any profits made by the use thereof.”
In this agreement the parties each have three days where they use Z and retain all revenues from the Business on those days. Each party is individually procuring and selling their own hair-related products. The parties have separate advertising and promotional activities and have to obtain their own tax registrations.
This arrangement appears fairly similar to the scenario seen in the case of Kamex. In that case the ONCA had to determine whether co-owners were also partners. The court determined there was no partnership for a number of reasons, including that the parties kept separate their respective beneficial interests. The barbers two are keeping their interests separate it seems clear that all they are sharing is the space and the cost of the space on a 50-50 basis. Despite it stating that they are partners in the agreement, this is clearly not a barbershop duet but rather two solos co-owning a space.
Hi Lisa,
Great response to the hypothetical. I like your analogy to Kamex, it does seem to have a similar scenario. I agree that the ‘in common’ requirement did not really indicate that this was a partnership, particularly due to their reporting revenues separately for tax purposes. I wanted to add that I also found that the ‘with a view of profit’ requirement was not necessarily met particularly due to the ambiguity over whether the business is in fact seeking to have revenues exceed expenditures (in order to make profits). There is mention of reporting any and all revenues, but it is not clear that the objective is to have those revenues exceed expenses.
I agree with both of the above posts. However, just to see the issue from the other side – if you did have to argue that a partnership does in fact exist – I would point out that the court has shown in the past that it is quite willing to imply that something is a partnership, far more willing than if the enterprise was a corporation. The question for determining whether an enterprise is a partnership is whether the parties have done enough to be found to have commenced the joint enterprise in which they had agreed to engage, and less about whether the partnership enterprise had commenced trading.
Here, it remains arguable that the enterprise is a corporation because there is evidence which shows that the parties are collaborating together by working in the same physical space, leasing the same property under one single company name and seem to be jointly liable for the company. They are both equally prohibited from selling non-hair related products on business premises. Therefore, to draw a line based on separation of revenue and tax would be artificial, since the company name remains the same legal personality and both parties use the same physical space to carry on the same business venture.
To add to Olivia’s comment, the ruling in Volzke suggests that it is important to look to the intentions of the parties. As such, in the sample agreement, both X and Y are respectively referred to as a “Partner” (see 2.7-2.10). It could be inferred from this agreement that both X and Y intended there to be a partnership. However, additional facts are needed in order to determine this issue. If other facts, such as their representations to other parties as being “Partners”, it may be inferred there is a partnership.
I’m curious as to what significance a court will ascribe to the parties’ intentions in light of other factors which may/may not suggest a partnership