PM132200 | Who is a partner?

The test to be applied is that at S1(1) Partnership Act 1890:

’Partnership is the relation which subsists between persons carrying on a business in common with a view of profit.’

In the case of Tiffin v Lester Aldridge LLP [2012] EWCA Civ 35 the Court of Appeal said that in looking at whether someone was a partner, it was important to look at the intention of the parties.

Although some factors are seen as being indications that someone is, or is not a partner, their importance will vary depending on the facts of the case. In the case of Williamson & Soden v JJ Briars [2011] UKEAT/0611/10/DM, Briars received a share of the profits: although this is often an indication of being a partner, in this case it was outweighed by other facts and he was held to be an employee.

A loan advanced to a business on terms that the rate of interest is to vary according to the profits does not of itself make the lender a partner in the business, provided that the loan agreement is in writing and signed by the parties concerned. A contract for remuneration varying according to the profits does not of itself make the servant or agent a partner in the business. As regards salaried partners you should refer to PM132100.

In applying the test of whether someone is carrying on a business in common:

• You have to look at all the facts of that case.

• No single factor will be determinative.

• The weighting of any factors depend on the facts of that case.

• The intention of the parties is important.

• Is the person really a principal; that is, someone who is part of the business or someone who is its servant?

Where a person admitted as partner is a nominee, acting under the instructions of a principal, it is necessary to decide who is taxable on the profit share. The person taxable on the profit share is the person who was admitted as a partner, whatever the context in which they have become a partner. If the other partners admitted the principal to the partnership but agreed to allow the principal to stand behind a nominee, the principal is taxable on the profit share. In other cases the nominee is taxable, as the nominee is the person admitted to the partnership.