And not only that, but this case dealt with a specific and unusual issue in banknote law: the classification of the legal personality of a person paid by a note, whether as a partnership or as a company in a tax appeal whose name is similar to the name of the payee, circumstances are completely different from our case.
- Another case in which rules relating to a partnership (in real estate) were applied despite the existence of a limited liability company, which was cited in the plaintiff's summaries, occurred in other municipal applications 47/78 Plot 3 in Block 6541 in the Tax Appeal v. Ben Ephraim, IsrSC 32(3) 723 (1978) (hereinafter - the Ben Ephraim case). In that case, a company was established for the purpose of purchasing land and constructing buildings. At one point, the company's shares were transferred to two others. After the death of one of them, the shareholders - the original and the widow of the other - reached a dead end in connection with the construction of the buildings, and one of them asked for the dissolution of the company, while seeking to see it as a kind of partnership and insisting on the rule that a partner in real estate can demand the dissolution of the partnership at any time. It was determined that the company was established at the time for only one purpose - tax savings, and therefore the rule relating to the dissolution of a partnership in real estate should be applied and the dissolution of the company should be allowed for reasons of justice and honesty. The Supreme Court added that "... But when it comes to a partnership in property and turning the partnership into a company was nothing but a trick, with no intention of changing the proprietary relationship between the partners - which I am."
- The literature also mentions a situation in which the business is managed by way of a partnership between the parties, even if the corporate organization is as a limited company:
"... If a corporation is incorporated under another law, such as, for example, the Companies Ordinance, then the ties between the members of the company do not constitute partnership ties. However, this is not the case when the parties enter into a contract in the first place in order to conduct a business together as partners, but rather the organizational form they chose was the form of a limited liability company" (Zalman Yehudai Law in Israel 34 (1988)).
- However, this is not a wide gate, but only a small breach. The courts have recognized the existence of a partnership in cases where the parties have chosen to incorporate as a limited company, especially in the case of small private companies that operate in practice as a "quasi-partnership" (see Civil Appeal 161/76 Stiebel v. Stiebel Ltd., IsrSC 32(1) 510, 514 (1978); hereinafter - the Stiebel case).
Accordingly, the case law established necessary auxiliary tests for the substantive classification of the engagement and its results, with great weight given to the fact that the shareholders are also relatives, for the purpose of applying the principles of partnership law to an engagement in a corporate structure (Stiebel, at p. 515).
- Other Municipality Applications 8712/13 Adler v. Livnat (September 1, 2015) (hereinafter - the Adler case) It was explained, in the context of the granting of a relief of separation of powers in a company that was clarified to be a kind of partnership, that the classification of a company as a quasi-partnership for the purpose of granting a relief of separation of powers must be done carefully. A series of auxiliary tests can be used, including: whether the company's activity is characterized by a personal relationship between the shareholders, which involves mutual trust; whether there is an understanding between the shareholders about joint management of the company's business; whether the shareholders have decided to impose restrictions on the transfer of shares; What is the number of shareholders; and what are their holdings relationships; Is it a family company; the extent to which the company's business is diversified; What is the company's profit-sharing and guarantee-taking policy; and how the parties chose to present themselves among themselves and in front of third parties.
It was emphasized that "the exam must be rigorous and that no test - when it stands on its own - should be given decisive weight... Notwithstanding my clear conclusion that we are dealing with a quasi-partnership, it is not superfluous to reiterate that this is not the usual case and that, as a rule, the court will not easily be inclined to classify a company as a quasi-partnership" (paragraphs 76-77; The emphases are not in the source; See also Civil Appeal 5025/13 Metal Industries in Tax Appeal v. Habib (February 28, 2016), para. 17).
- In his summaries, the plaintiff elaborated on the tests in case law regarding the existence of a partnership. It should be noted that these tests, which I will discuss below, are general tests for the existence of a partnership, when it is not registered, but this is when there is no engagement in another corporate structure. Therefore, they must be examined with the necessary caution in light of the circumstances of the case and taking into account the case law's requirement for the existence of exceptional circumstances in order to ignore the formal structure of the engagement chosen by the parties.
Naturally, a similarity in business interests that leads to a joint pursuit of economic achievements is shared by both the company's shareholders and partners in the partnership. Therefore, not all indications of the existence of a partnership that will be found in the matter before me will tip the scales in favor of the plaintiff, but only those that point to a partnership and not to a company and the uniqueness of the partnership only.
- Taking into account the aforementioned qualifications regarding the examination of whether it is a partnership despite the existence of a different corporate structure, I will briefly discuss the general conditions for examining the existence of a partnership.
In general, although the legislature has determined that a partnership for the purpose of managing a business is required to be registered and published in the Official Gazette ( sections 4 and 8 of the Ordinance), the very registration will not constitute a constitutional condition for the purpose of creating the partnership (section 6 of the Ordinance). The existence of a partnership is determined by the content of the engagement between the parties, and not by the terms used by the parties (Civil Appeal 581/89 Edri v. Rosenberg, IsrSC 46(5) 679, 684 (1992); Civil Appeal 609/78 Ken-Tor v. Gilboa, IsrSC 34(1) 239, 248 (1979); hereinafter - the Gilboa case). Accordingly, it was held that the existence of a partnership is a mixed question of fact and law (Civil Appeal 727/88 Schwartz v. Renan, IsrSC 46(5) 853 (1988); hereinafter - the Schwartz case; Civil Appeal 7065/15 Levy v. Nahalat A.M. Construction and Initiation in a Tax Appeal (January 28, 2018), para. 8; hereinafter - the Levy case).