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ACCA Applied Skills · Corporate and Business Law (Global) · Partnerships

Kofi lends 20,000 to a restaurant owned by Lena. The agreement says Kofi will receive interest that varies with the restaurant's profits, but he has no say in running the business and is not called a partner. Which statement is most likely correct?

Kofi is not automatically a partner. Receiving profit-linked interest as a lender is only evidence, not proof, of partnership, and with no management role or co-ownership his relationship looks like that of a creditor.

  1. AKofi is automatically a partner because he is paid from profits
  2. BReceipt of a profit-linked payment by a lender does not by itself make Kofi a partnerCorrect
  3. CKofi is a partner because he has lent money to the business

Explanation

Sharing profits is evidence of partnership but is not conclusive. A lender whose return varies with profits is not by itself a partner, and the whole relationship must be considered, including the absence of management rights. Option A treats profit sharing as decisive. Option C is wrong since lending alone creates a creditor relationship.

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