On the face of it, Jack, Jill and Marco have formed a partnership and based on their draft agreement should share equally the $200,000 annual royalty paid by Hyper Games Ltd for the exclusive licence of the game they developed between themselves. However, if circumstances are analysed in conjunction with relevant partnership legislation, the Partnership Act 1963 and precedent case law it becomes less clear that there is a partnership between the three.
The issues arising, that raise doubt as to whether Marco should be entitled to a one third share of the annual royalty are:
• Jack and Jill had already developed an early version of Galactic Explorer, before Marco’s ...view middle of the document...
Is There a Partnership between Jack Jill and Marco?
The definition of a partnership does not vary across jurisdictions, with each definition encompassing the following criteria in determining the existence of a partnership:
• There is a Valid Agreement between the three;
• They intend to carry on a business – their arrangement was to share profits from sale, lease or licence of the game which may suggest an intention for them to carry on business, but once the game was developed it is questionable as to whether there was an ongoing business
• In Common - meaning there must be some mutuality of rights, agency, interests and obligations; it appears Marco only assisted Jack and Jill.
• View to Profit - partnerships must form with a view to profit which they clearly did
Because their relationship would seem to be a partnership, there are rules to work out to ascertain whether this relationship is a partnership:
Rule 1 – Co-ownership
Subsection (1) of the Act makes clear co-owners of property who share profits are not partners unless the partnership tests set out are fulfilled. In the case of Jack, Jill and Marco it is unlikely they are co-owners of their game.
The typical differences of Co-Ownership and Partnership are:
• Co-owners are not agents of each other
• Co-owners do not usually share profits/losses
• Co-owners do not necessarily carry on business in common
• An interest as co-owner could be transferred without agreement of others
Rule 2 – Sharing of Gross Returns:
Subsection (2) makes clear sharing profits is not enough to create partnership
Rule 3 – Sharing of Profits and Losses
Sharing profit and losses of a business may indicate partnership but the tests are of business in common with a view of profit must be fulfilled for there...