Analysis of Business Relations and Importance of Partnership Agreement

Overview of Business Relations between Jessica, Cole and Jee

Jessica, Cole and Jee become friends after meeting at an Auckland yoga class. They are all interested in maintaining a healthy life style and discuss how they can make money out of their mutual interest.

In March they discuss buying a shipment of apple cider vinegar mixed with Manuka honey from John a small producer outside of Auckland. Although other producers also make this product, Jessica, Cole and Jee believe John’s cider to be superior to anything they have tested before.

They agree that Jessica will buy a shipment of John’s cider, Cole will rent and staff a temporary shop in the local shopping mall for a week to sell the cider and Jee will prepare marketing materials explaining the benefit of the cider to customers. They will each pay their own expenses. At the end of the week they will share the proceeds of sales. Jessica and Cole will receive 40% each and Jee 20%. Sales are good and all three are happy with the result.

In April, Jessica, Cole and Jee meet together and decide that their next step is renting a permanent store selling a variety of products. They decide to only sell healthy food. In particular they agree that they will never sell unhealthy food or drink. Cole will look for suitable premises, deal with the landlord and manage the shop. Jessica will deal with the suppliers and Jee will handle accounts, bank the money every day and pay all expenses. Cole finds a shop in Auckland and after Jessica and Jee have inspected the premises and the lease documents they tell Cole to go ahead and sign the lease and they set up operation. Unfortunately, they do not think to see a lawyer to define their relationship in legal terms as they consider lawyers too expensive.

In May business is going well. Cole is in the shop, which has been named Elite Grocers, when the owner of a catering business rushes in. The owner tells Cole that he has a big order for a new client with an urgent job who is asking for the sort of food that Elite Grocers could supply. Cole can see that the caterer is desperate so he charges twice the price he would usually charge and keeps half for himself. Jessica and Jee are upset and demand that Cole pay over all the money. Cole says he is entitled to the extra money and wants to keep it.

(i)Analyse the relations between Jessica, Cole and Jee from March onwards and discuss the business relations they have. Do they become a partnership at any stage? If so, then when?

(ii)Explain to Jessica, Cole and Jee why a partnership agreement is important when entering into a partnership. Also explain what law applies if there is no partnership agreement. Can Cole keep the extra money?