Partnership

Malaysian Legal Environment 510

5 (a) Partnership

- Dissolution

Partnership is defined in section 3 (1) of the Partnership Act 1961 is the relations which subsists

between persons carrying on business in common with a view of profit.

From this definition, it can be seen that there are three elements that are involved in the creation of a

partnership. First, there must be more than one people to constitute a partnership. Second, there must

be an agreement between the person, express or implied, to have a business in common. Third, it is also

essential that there is agreement between the people to carry on the business for profit. Partnership is

the most common mode of business operation in Malaysia. It is formed to operate concern varying from

trading firms to professional firms. Those engaged in business should have a basic knowledge of the law

governing partnerships.

A partnership may dissolve in several ways. The partners are entitled, unless otherwise agreed, to share

the assets of the partnership after payment of the firm’s debts. Dissolutions may occur in the following

ways: -

i. By agreement

If the duration of the partnership has been specified in the partnership agreement, the

partnership is terminated on the expiry of that period;

If the partners mutually agree to dissolve the partnership at anytime.

ii. By operation of law

If the partnership was entered in for a fixed term and the term expires, such partnership

will expire according to sections 34 (1).

If the partnership was entered into for a single adventure or undertaking, it terminates

by virtue of section 34 (1).

If the partnership was entered into for an undefined time, by any partner giving notice

to other partners of his intentions to determine the partnership as provided under

section 34 (1).

Case: J.M.M Lewis v. W.E Balasingham

A notice of dissolution would be ineffective as there was in existence agreement which had

provided for a means of terminating a partnership. If the partners have agreed as to the

method by which the partnership can be dissolved, no other way is to be used.

iii. By death or bankruptcy


Every partnership is dissolved as regard all the partners by the death or bankruptcy of any

partner (s.35 (1)). This is subject to any agreement that may have provided otherwise. But, if

one partner sends notice of dissolutions to the other partners, and dies before the other

partners receives the notice, the partnership is dissolved by death and not by notice.

Case: Lee Choo Yam Holdings Sdn Bhd v. Khoo yoke Wah

The plaintiffs applied for a declaration that the partnership was dissolved by the death of any

partner.

HELD: On the death of any partner, a partnership therefore stands dissolved unless there is

evidence that the partners had agreed otherwise.

iv. By charging on share

Where a partner suffers his share of the partnership property to be charged with payment of his

personal debt, the other partners have the option of dissolving the partnership (s.35 (2)).

v. By supervening illegality

If an event occurs which makes it unlawful for the business of the firms to be carried on or for

the member of the firm to carry on in partnership, the partnership is dissolved (s.36). This

section cannot be varied or modified by the partners. This could happen when, for instance,

there is a change in circumstances or status in law.

Case: Hudgell Yeates & Co v. Watson

One of three solicitors in a firm forgot to renew his practicing certificate without which he was

forbidden to practice under Solicitors Act 1974.

HELD: The partnership was automatically ended.

vi. By Court order

A partnership may be dissolved by a court order on the application by a partner (s.37). The

power of the court to order dissolution of a partnership is entirely discretionary. On application

by a partner, the court may order dissolution in any of the following cases:

Insanity of a partner

Permanent incapacity of any partner

Conduct of any partner prejudicial to the partnership

There is a willful and persistence breach of partnership agreement by any partner

Partnership suffers loss for several years.

When there is just and equitable ground


5 (b) A Legal Advice to J

- Legal requirement and mode of giving notice of dissolution of partnership to both old and new

customers of J, M & Co of which he is a partner.

As J wants to retire from printing firm of J, M & Co he is advised that unless notice of dissolution is

given, all customers of the partnership are entitled to treat all the former members as continuing to be

members: Tower Cabinet Co. Ltd. V. Ingram.

Section 39 of the partnership Act 1961 states:

On the dissolution of a partnership or retirement of a partner, any partner may publicly notify the same,

and may require the other partner or partners to concur for the purpose in all necessary or proper acts, if

any, which cannot be done without his or their concurrence.

On J’s retirement, any partner may publicly notify the same, and may require the other parties to concur

for that purpose in all necessary or proper acts if any, which cannot be done without his or their

concurrence – section 39, Partnership Act 1961. The transfer of J’s share in the partnership would have

to be registered with the Registry of Business pursuant to the Registration of Business Act 1956.

Notice may be given by an advertisement in a local press, gazette or by a circular letter. However, for old

customers and clients of the partnership, an advertisement in a gazette alone is not sufficient notice: Re

Hodgson, Bechkett v. Ramsdale and Kam Hoy Trading v. Hup Aik Tin Mining. Expressed notice such as

circular letter must be served on old customers and clients of the firms: Barfoot v. Goodall. It was

decided in Graham & Ors. V. Hope & Ors. that when partners dissolved their partnership, they should

send notice to all persons who have trusted them as partners.


References

Lee Mei Pheng, (1997) General Principles of Malaysian Law. 5th ed. Shah Alam: Fajar Bakti.

Musrifah Rustam, (2004) Manual for Business Law, Faculty of Law, UiTM, Shah Alam.

Nuraisyah C. Abdullah, (2003) Business Law in Malaysia, UPENA, UiTM, Shah Alam.

Vohran, B. and Wu Min Aun (2000) The commercial law of Malaysia, Longman.

Hand out from Lecturer – Nor Zehan Binti Abd Rehman, Peguambela & Peguamcara, Klang

Documents

Partnership