of law; nor does the law ever presume its existence arbitrarily. Invariably the relation is founded upon a lawful contract, either express or implied, between two or more competent parties. 381. Effect of incorporation.-When a partnership association becomes incorporated its status is changed to that of a corporation, the features of which are radically different from those of a partnership. 382. A lareful business.-A combination to carry on an illegal business as principals for joint profit is not a partnership. To render it such the business contemplated must be lawful. 383. Purpose pecuniary gain.-Combinations are sometimes formed for philanthropic or social purposes and not for pecuniary gain. Such combinations are not partnerships, nor are their members liable as partners. 384. Co-ownership of profits.-To render an association a partnership, the members must be co-owners of the profits. In other words they must share in the profits as profits. To share in the profits merely as a measure of compensation and as a fund out of which the members are to be paid for services rendered, is not sufficient. 385. Differences between a partnership and a corporation. A partnership differs from a corporation in several material respects. A partnership is a voluntary association of individuals; the members sue and are sued in their individual names; and each partner is individually liable for all the firm debts. The death of a partner, or the transfer of his interest in the firm business, terminates the partnership. On the other hand, a corporation is a legal entity separate and distinct from the shareholders. It sues and is sued in the corporate name. A shareholder's liability is usually limited to the amount of his subscription. Moreover, his death, or the transfer of his stock, does not dissolve the corporation. It is to be observed, therefore, that the leading inducements to the formation of corporations are limited liability, facility of transfer of interest, and immunity from dissolution by death of a member or transfer of his interest. 386. Intermediate associations.-There are certain associations which are neither partnerships nor corporations, but which possess some of the characteristics of both. Chief among these are joint-stock companies, partnership associations limited and limited partnerships. A joint-stock company possesses most of the characteristics of a partnership, but its shares are transferable without dissolving the company. A limited partnership is an association, authorized by statute, having one or more general partners whose liabilities are unlimited, and one or more special partners whose liabilities are limited, usually to the amount of their contributions. EXAMPLES 369. A, the owner of a certain boat, allows B to operate it in consideration that B pays him one-half the gross earnings. A and B are not partners. The gross earnings constitute a measure by which B's wages are determined and a fund out of which they are to be paid. 370. A, a seaman, sues B, the captain of a ship, to recover wages due him. Their contract provides that the product of the voyage is to be divided between them in certain proportions. A and B are not partners; hence the action will lie. The relation existing between A and B is that of servant and master. 371. A and B are partners. A, without B's consent, enters into a contract with C by which C is to share equally with A his share of the profits and losses of the business. C is not a member of the firm. The partnership relation is one of trust and confidence, and one partner cannot, without the consent of the other, introduce a third party into the firm. 372. A number of young men organize a Young Men's Christian Association for religious purposes. These young men are not partners nor liable as such to third persons. purpose of association is not pecuniary gain. The 373. A and B purchase a horse for the purpose of resale at a profit. They agree that either one who has possession of the horse is to feed him at his own expense, that each is to endeavor to find a purchaser, but that neither is to sell without the concurrence of the other. A and B are not partners, but tenants in common.1 374. A and B enter into an agreement to undertake jointly the enterprise of purchasing a piece of land and selling it at a profit, which is to be shared by them equally. A and B are not partners, but tenants in common.2 375. A and B, who are farmers, purchase a threshing machine, for which they give their joint and several notes, secured by a chattel mortgage on the machine purchased; and jointly take possession of, and use the machine in threshing grain for others. A and B are not, necessarily, partners.3 376. A and B enter into an agreement to engage in smuggling and share equally the profits and losses. A and B are not partners, since the business of smuggling is illegal. In such a case the law will not compel an accounting nor enforce a division of the profits or contribution for losses. 377. A, the owner of a hotel, and B enter into an agreement by which B agrees to "hire the use" of A's hotel and pay A therefor, from day to day, a sum "equal to one-third the gross 1 Goell v. Morse, 126 Mass. 480. 2 Gottschalk v. Smith, 156 Ill. 377, 40 N. E. R. 937. 3 State Bank of Lushton v. Kelley Co., 66 N. W. R. 619. receipts and gross earnings." A and B are not partners, nor is A liable to third parties as a partner of B.1 378. A loans B $10,000 on the agreement that B is to pay him for the use of the money one-tenth of the net profits in addition to the interest at 5 per cent. A is not a partner of B, nor liable as such to third persons.2 379. A and B enter into an agreement whereby A is to furnish B with money to purchase a carload of hogs which A is to take possession of, as security, sell them, reimburse himself, and have half the profits; but in any event B is to pay back all money furnished by A. B, without A's knowledge, buys on his individual credit a lot of hogs of X which form part of the lot which A sells in accordance with the agreement. The hogs are sold at a loss and B reimburses A, but does not pay X. A is not liable to X as a partner of B. "Although a partnership may be said to rest upon the idea of a communion of profits, nevertheless the foundation of the liability of one partner, for the acts of another is the relation they sustain to each other as being each principal and agent.3 380. A employs B to clerk in his store and agrees to pay him for his services one-tenth of the net profits of the business. B is not a partner of A as he is not a joint owner of the profits. The chart on pages 301-302 shows the important features of six principal kinds of business associations.1 387. Classification of partnerships.-Partnerships are classified as follows: Ordinary partnerships, limited partnerships and joint-stock companies. Ordinary partnerships are subdivided into universal, general and special partnerships. A universal partnership is one in which the partners combine all their property and services for their joint 1 Beecher v. Bush, 45 Mich. 188, 40 Am. Rep. 465. 2 Meehan v. Valentine, 145 U. S. 611. 3 Harvey v. Childs, 28 Ohio St. 319. 4 The so-called Massachusetts Trust has been advocated lately as a substitute for the partnership and the corporation. See "Trust Estates as Business Companies," by John N. Sears. |