I now pronounce you partner and partner

I now pronounce you partner and partner

Yair Aloni, Adv.
June 8, 2024

An entrepreneur decided to cooperate with a social media influencer and promote a 'joint venture' in the field of trade via a designated website established for this purpose, in return for paying commissions and sharing profits at an agreed rate. After an extended period in which the parties worked together to achieve their joint business goals, based on verbal understandings between them, the entrepreneur decided to end the joint venture and transfer the business activity to a company in his sole control. The influencer claimed that he should be considered a full "partner" and therefore he is also entitled to shares in the newly established company. Is he right?

Under the Israeli Partnership Ordinance, "partnership relationships" are "the relationships between people who manage a business together for the purpose of generating profits" unless they are incorporated under another type of corporation. Due the fact that a partnership does not require registration as a condition for its existence or even a written contract, sometimes a party who seeks to acknowledge the partnership relationship and his status as a partner will be required to present evidence and references indicating that the intention of the parties was to establish a 'partnership relationship'. And on the contrary, due to the lack of clarity in the law, in some cases a person may discover in retrospect that he is in a "partnership" even though he did not necessarily mean it, if the other party has shown that the required parameters are met, which are: the existence of a business; by two or more persons; and for profit. To show these conditions are met it is also necessary to show that there was a common desire to actually behave as 'partners'. For example, what was the intention of the parties? ; Did they present themselves to third parties as 'partners'; Did each party participate not only in the profits but also in the risks involved in running the business, such as bearing losses?; Did the parties participate in the management of the business?; Whether roles or responsibilities were divided between them; Whether each party had the right to impose obligations arising from the business on each other; and more.

Sometimes, the intention of the parties to engage in commercial cooperation between them or for the purpose of a 'joint venture' is not sufficient to establish a partnership relationship. Thus, for example, in a case heard in the Lod Central District Court in November 2023, the Court did not acknowledge a commercial enterprise as a partnership. In that case, the parties agreed to cooperate within a joint venture for the development of technology for a limited period, and the parties also agreed that a joint company would be established for the purpose of the venture. Although the parties presented themselves to the public as 'partners' for marketing purposes and recruiting investors, in practice the company was not established and not all parties took part in paying the expenses of the venture and therefore the Court held that there was no intention to establish a partnership.

However, in another case heard in the Tel Aviv Magistrate Court in March, 2023, the Court held that the intention of the parties to establish a 'joint venture' reached to a level of partnership and the entrepreneur must disclose to his partner accounting documents relating to the venture's activity. In that case, the entrepreneur and the partner had divided roles and defined responsibilities, opinions were exchanged regarding the project and meetings were held to promote it. In addition, from the way the parties expressed themselves over the years it was possible to learn about the intention of sharing and they even referred to each other as 'partners' along the way. The parties also jointly discussed how to incorporate the venture and open a bank account, including meeting together with an accountant.

The term "partnership" has material legal meanings, which the parties do not always intend (and even if they intend to create a partnership, they usually do not intend to apply the default provisions of the Partnerships Ordinance). As in the commercial life there is a wide variety of business engagements such as: collaborations, business combinations, business ventures, business brokerage, etc. that do not necessarily reach to a partnership level, it is advisd not to leave the decision in the matter up to fate and to employ a lawyer who specializes in drafting commercial agreements in order to regulate the business relationship in a written agreement in a manner that clearly expresses the intentions of the parties and their rights and does not leave it to the Court to determine that retrospectively.