The law of partnerships has been around for at least a couple of centuries, but there are still 'certain aspects of the law on the formation of partnerships that could be usefully clarified', in the words of Lady Justice Arden of the English Court of Appeal: Ilott v Williams, [2013] EWCA Civ 645. Ilott and three others joined forces to market a new concept in asset management. The four individuals needed some outside expertise, so they entered into a deal under a side letter with the general partner of BlueCrest, a limited partnership, under which they would become limited partners of BlueCrest and share with it the profits of the new venture. The business went well, but disagreements arose and the original four proponents disagreed about profit-sharing. Ilott argued that they were in partnership, which gave him the right to a share of partnership profits from the time they had joined forces.
But had they formed a partnership? The trial judge thought not. On appeal, Ilott took the position that the partnership arose once the parties agreed to establish the business, not from the later point when they had actually done so. The other parties said that a partnership was created only once the business was up and running and had acquired property. Lady Justice Arden agreed: there was no partnership until the business was actually operating. More is required than a mere decision to carry on business, although preparatory work can qualify to the extent that it is carried on with a view to profit. Just creating PowerPoint slides and planning pitch meetings was not enough on these facts, however. When the parties first got together, they had a concept, but no means of creating any profit and had made no financial commitment to the venture apart from the acquisition of a domain name. They did not purport to bind each other contractually and had not agreed on the legal form their business was to take. They didn't even have funding. Even if a partnership had come into existence, it would have been dissolved by virtue of the agreement with BlueCrest 'for the simple reason that the business became that of the BlueCrest organisation'. Ilott therefore had no claim against his three business associates for a share in partnership profits. He could still go after BlueCrest for his share of a contractual right to profits under the side letter. A hitch there, though: Ilott had been notified of his removal as a partner of BlueCrest, which disentitled him to share in the profits of the business from the point at which that became effective. 'Harsh results' for Ilott, but there were no grounds to 'rewrite the agreement to accord with what the court might think fair' -- or Ilott, for that matter.
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