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Partnership Law Act 2019

Nature of partnership - Determining whether partnership exists

15: Where receiving profits or payments does not make person partner or liable as partner

You could also call this:

“Getting money from a business doesn't always make you a partner”

You should know that just because someone receives money or profits from a business, it doesn’t always mean they are a partner in that business or responsible as a partner. Here are some situations where this applies:

If you get paid back a debt from the profits of a business, even if it’s in instalments, that doesn’t make you a partner.

If you work for someone who runs a business and you get paid with a share of the profits, you’re not automatically a partner.

If a family member of yours who was a partner in a business has died, and you now receive some of the business profits regularly, that doesn’t make you a partner.

If you lend money to a business in certain ways, like getting paid back with a share of the profits or interest that changes based on how well the business does, you’re not considered a partner just because of that.

If you sold your part of a business and now receive some of its profits as payment, that doesn’t mean you’re still a partner.

When we talk about family members getting money after a partner dies, we mean the partner’s wife, husband, civil union partner, de facto partner, or child.

For the lending money situation, there needs to be a written agreement signed by everyone involved. This agreement should say that you’re lending money to someone who is running or about to run a business, and that you’ll get paid back with either a share of the profits or interest that changes based on how well the business does.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS205997.

Topics:
Business > Industry rules Money and consumer rights > Banking and loans
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14: Effect of receiving share of profits, or

"Getting profits doesn't always mean you're a business partner"

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16: What happens if borrower or buyer is insolvent, or

"What happens when someone who borrowed money or bought a business can't pay their debts"

Part 2 Nature of partnership
Determining whether partnership exists

15Where receiving profits or payments does not make person partner or liable as partner

  1. None of the following by itself makes a person (A) a partner in a business or liable as a partner:

  2. A receives a payment of a debt or any other liquidated amount, by instalments or otherwise, out of the accruing profits of the business:
    1. A is an employee or agent of a person who is engaged in the business and A has a contract for remuneration by a share of the profits of the business:
      1. A is a relative of a deceased partner and receives by way of an annuity a share of the profits of the business in which the deceased person was a partner:
        1. A is a lender who advances money in the circumstances specified in subsection (3):
          1. A receives a share of the profits of the business by way of an annuity or otherwise in consideration of the sale by A of the goodwill of the business.

            1. In subsection (1)(c), relative, in relation to a deceased partner, means the widow, widower, surviving civil union partner, surviving de facto partner, or child of the deceased partner.

            2. For the purposes of subsection (1)(d), the circumstances are that—

            3. the money is or will be advanced as a loan under a contract to a person who is engaged or about to engage in the business; and
              1. under the contract, A will receive—
                1. a share of the profits arising from carrying on the business; or
                  1. a rate of interest that varies with those profits.

                  2. For the purposes of subsection (1)(d), the contract referred to in subsection (3) must be in writing and signed by or on behalf of all the parties to the contract.

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