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PREPARED BY: MADAM NORAZLA ABDUL WAHAB
PARTNERSHIP
The relevant statue applicable-Partnership Act 1961
DefinitionSection 3(1) Partnership Act 1961Partnership is the relation which subsist
between persons carrying on business in common with a view of
profit.• Partnership must be registered under the Registration Business Act 1956.• However, Failure to register does not mean the partners cannot enforce their
rights for each other.
Gulazam v Noorzaman and Sobath
[1957] 23 MLJ 45
Facts: An agreement between the Plaintiff and
Defendants where the Plaintiff would provide capital for the purchase of cattle and the defendants would look after the cattle and then sell them in order to gain
profits to be distribute equally amongst them.
When the defendants failed to pay the plaintiff an action was brought against
them.
Continue….
The Defendant argued that the business had never been registered under any
Acts, hence making it not a partnership at all.
Held:The plaintiff could claim because the
relationship between the individuals had the business character of a partnership within the scope.
ELEMENTS OF PARTNERSHIP
1. More than one person
Must have more than one person.
Partnership means…….two or more can become a partner in a
partnership…..if one person it will be sole proprietorship…..
• Section 47(2) of PA 1961 (Revised 1974), the maximum number of
partners allowed in a partnership is twenty (20).
• But, Section 14(3)(a) Companies Act 1965, a professional
partnership can have unlimited numbers of partners.
• i.e: lawyers- legal firms- LPA
Continue…..Tan Teck Hee v Chong Tian
Peng
Held:The action against Defendant fail
because the numbers of partners in the firm concerned was 25.
Since the firm was void, any legal action taken could not be allowed.
• Shim Fatt v Leyland Road Bus Co.
The Plaintiff gave advance on money to the defendant, a firm consisted of
more than 20 partners. The Court held:
Plaintiff could not recover the money because a legal action could not be brought against a void firm,
2. Agreement between the partners
“relationship” :an agreement or a contract between the parties or a contract between the
parties to the partnership either expressly or impliedly.
Although the word partnership does not appear in a agreement, a partnership may still exist if the relationship between the
individuals has the business character of a partnership.
Ratnal Ammal@anor v Tan Chow Soo [1964] 30 MLJ 399
Facts: The parties enter the agreement to form a
‘syndicate” for the purpose of selling condensed milk.
The word “partnership” was not used in the agreement. Instead, the word ‘syndicate was
used.Held:
The relation of the parties had the business character of a partnership and although the
word partnership was missing in the agreement, it was still a partnership.
3. Present transaction of business activities
The parties must be carrying a partnership business at the
“present”. Business refers to any trade,
occupation or profession. (s. 2) Hence, there will be no
partnership if the parties are preparing a business for the
future.
4. Each partner is an agent to one another
Partners in a partnership is an agent to one another.
It means that the act of one partner are also reflects of the
act of the other partners, provided the act is in the course of
the business of the partnership.
Continue…. Section 7
Every partner is an agent of the firm and his other partners for the purpose of the business of the partnership….Acts of the other partners binds
the other partner and the firms….
UNLESS; The partner acting without
authority….and the person with whom he is dealing either knows that he has no authority or does not know or believe
him to be a partner….
5. For the Purpose to Profit
It is essential for the business to be carried on in a common with a view of
profits. Profits mean net profit.
Charitable or religious organization, clubs, societies & co-operative are NOT
PARTNERSHIP. Impliedly that the profit to be shared
equally
Mollwo, March & Co. v The Court of Wards
Held:To constitute a partnership, the
parties must have agreed to carry on business or to
share profits in some way in common.
CARRIED ON COMMON ?
Must carried on or by or on behalf of all partner.
Must be one person or more carry on the business for himself and on behalf
of the others. However, it NOT NECESSARY- all partners must play an active part in
business (sleeping partner).
Circumstances – NOT partnership
S. 4 (a), (b) & (c) of PA 1961
Examples:Joint tenancy, tenancy in
common, joint propertySharing of gross return
Types of Partners General partners
He is a partner in the fullest sense• Active partners
A partner who is actively participates in the management of the business and is
known to the world as the partner Dormant/sleeping partner
No active part in the management but still liable as partner.
Quasi- Partner Not a partner but liable for debts of the partnership as a consequences of holding out (causing other people to believe that
he is a partner).
S. 16- person who has retired from a partnership must ENSURE that no other
representation made by words or conduct of himself or any other partner to the effect
that he is still a partner of the firm.
Salaried partnerA partner who receives a fixed
remuneration irrespective of profits or who received a fixed salary
every months plus a small percentage of the profits.
Formation of Partnership
FormalityCan be formed with or without written
agreement
• CapacityAny one of sound mind can be a
partner.A minor partner cannot be held liable
and responsible for any contracts made
Continue…. Documents
Partnership Agreement Or Articles of partnership which provides for all
rights and duties of a partner
• DurationDepends on the intention of the
partners whether to fix the duration of the partnership or otherwise
S. 28 (1) : no condition as partnership duration: may
dissolve by giving notice.
Section 29(1):if the duration of partnership has expired but
all partners wishes to proceed with the partnership without having to make a new
agreement, the rights and duties of the partners are still the same.
RELATIONS OF PARTNERS TO OUTSIDERS
Power of Partners to Bind Firm Implied Authority Liability of Partners
Liability of Persons for Holding Out
Power of Partners to Bind FirmS. 7
Every partner is an agent of the firms and his partners for business.
Binds the firms & his partnersBut, the partners NOT LIABLE – if the partner act without authority
Implied Authority
A partner should has authority to do acts as what had usually done by
partners in a particular kind of business.
Examples:Sleeping partner-bounds by the contract made by active partners.
Implied Authority Every partner has implied authority to
BIND the firm.Depend on the circumstances, nature of
business & practice of the person engaged .
Examples: A partner sells the firm’s goods & chattels (Dore v Wilkinson (18177))
Purchasing on the firm’s behalf goods (Bond v Gibson (1800) 1 Camp 185)
Implied Authority
However,
The partner will be PERSONALLY LIABLE for his unauthorized act
UNLESS Be ratified
Liability of Partners S.11
Every partner in a firm is LIABLE JOINTLY with the other partners for all debts & obligations of the firm
incurred while he is a partner .
Liability of Partners Example:
Mamat supplied stationeries worth RM 5K to the firm of Didi, Dada & Dudu Trading. However, he has not been paid for that and start to sue
the firm. If there is insufficient common partnership property to satisfy the debt, he
can levy execution against private property of the Didi, Dada & Dudu or anyone of them. If Mamat fails to recover the debt from Dada
( i.e.) he cannot later sue the other partner.
Liability of Partners Tortius acts & wrongs (S. 12 &14)
The partner are JOINTLY & SEVERABLY LIABLE for such
wrongs committed by one of the partners in the ordinary course of
business of the firm with the authority of his co-partners.
Liability of Partners
Example:The partner done illegitimate – ALL
partners are LIABLE.Partner that entrusted with the trust property- OTHER PARTIES are NOT LIABLE except the person that personally beneficially interested it.
Liability of Person for “HOLDING OUT”
Example:He is NOT a partner of the firm BUT he by
words spoken or writtenrepresent himself or allow himself to be
represented as a partner in a firm.
LIABLE as partner BUT his liability only to those who have given credit to that firm based on a faith of that representation.
Liability of Person for “HOLDING OUT”
Bevan v The National Bank Limited (1906) 23 TLR 65
B carried on business as MW & Co. and employed MW as a manager of the
business. The court held:
Holding out
Liability of Person for “HOLDING OUT”
HOWEVER, When a partner dies and the partnership business is continued in the old firm name,
the continued use of that name
DOES NOT make his estate LIABLE for any partnership debts after his death.
(S. 16 (2))
INCOMING & RETIRING PARTNERS
Incoming Partners Retiring Partners
INCOMING PARTNER
S.19(1)Person that admitted as a partner
into an existing firm will NOT be LIABLE for anything done BEFORE
he became a partner.
RETIRING PARTNER
S.19(2)A partner retires , he REMAIN LIABLE
for the partnership debts incurred BEFORE his retirement.
S. 38 (1) …He IS still LIABLE UNLESS he has given an express NOTICE that HE IS NO LONGER A PARTNER to the person he is
dealing with
PARTNERSHIP PROPERTY
It must be used EXCLUSIVELY for the purpose of the firm.
Purchased with partnership money. It must be stated in the agreement
OTHERWISEIt is separate property of partner although it
may be used for or even important to the partnership business.
(see case Ponnukon v Jebaratnam [1980] 1 MLJ 283)
PARTNERSHIP PROPERTY
Ponnukon v Jebaratnam [1980] 1 MLJ 283
Court held :The land was not paid with the funds of
the partnership but the fund that raised by the J himself which is
independently of P and the partnership as well.
PARTNERSHIP PROPERTY S. 25 (1)
A creditor who obtained judgment against the firm may SEIZE the partnership property in
execution of the judgment. HOWEVER,
S. 25(2)A creditor who obtained judgment against AN
INDIVIDUAL PARTNER, CANNOT seize all the partnership property but only on the partner’s interest in the partnership property including
profits etc.
RELATION OF PARTNERS TO ONE ANOTHER
Via agreement
Mutual rights & duties of the partners i.e. conduct & management of the
business, the capital to be provided by each partner, the proportion of profits,
rights & duties of the partners.
RELATION OF PARTNERS TO ONE ANOTHER
Via agreement
If No specific provisions- rules in PA will apply.
However, may be varied by the consent of all the partners.
RELATION OF PARTNERS TO ONE ANOTHER
S. 26
All the partners SHARE the capital, profit & loss EQUALLY.
The firm must indemnify every partner in payment made & personal liabilities incurred by
him.Entitled for the interest of 8% per annum for the
advanced made.
RELATION OF PARTNERS TO ONE ANOTHER
S. 26
No partner entitled for the interest of the capital before the ascertained of profits.
Every partner may take part in the management of the business.
No partner is entitled to remuneration.
RELATION OF PARTNERS TO ONE ANOTHER
S. 26
No person be introduced as partner without consent of the other partners.
Any differences may be decided by majority but subject to the consent of all existing partners.
The partnership books/account must be kept at the place of business.
RELATION OF PARTNERS TO ONE ANOTHER
Above all
Principle of “UTMOST GOOD FAITH” between the partners is implicit in every partnership
agreement.
(see case Vasu Devan& Ors v V.V.Nair (1985)1 MLJ 137)
Assignment of Partner’s Share
A partner is entitled for the proportion of the assets when the firm’s assets
have been sold and after the deduction of the debt.
A partner may assign his share absolutely or assign the assignee in the
case of mortgage or redeemable charge.
Assignment of Partner’s Share
However, the assignee is not entitled to interfere in the: management of the partnership business
To require any account of the business transaction
To inspect the partnership book ( S. 33(1))
Assignment of Partner’s Share
The assignee only entitled: Receive the share profit to which the
assigning partners entitled toTo accept the account & profit agreed
to by the partners( S. 33(1))
DISSOLUTIONS OF PARTNERSHIP
1. DISSOLUTION WITHOUT COURT’S INTERVENTION
By agreementPartnerships articles may fix the duration of partnership, and the partnership is terminated on the expiry of the period.
The partners may mutually agree to dissolve the partnership at any time.
Continue….• By operation of law
By expirationIf a partnership is entered into a fixed term (section 34(1)(a)) or for a single adventure or undertaking section 34(1)(b), the partnership is dissolved on the expiration of the fixed term or termination of the adventure or undertaking
Continue….
NoticeSection 34(1)(c)If the partnership is entered into for an undefined time, any partner may determine the partnership at any time by notice to the other partners.
Continue….
• By death or bankruptcySection 35(1)Subject to any agreement between the partners, every partnership is dissolved as regards all the partners by the death or bankruptcy of any partner
Continue…..
• By charging on sharesSection 35(2)when a partner suffers his share of a partnership property to be charged with payment of his personal debt, the other partner has an option of dissolving the partnership.
When a number of partners exceed 20
Continue…..
• By supervening illegality Section 36it is unlawful for the business of the partnership to be carried out
DISSOLUTION BY AN ORDER OF THE COURT
By the application of the partner: Insanity of partner
Section 37(a) Permanent incapacity of a partner to
perform his dutiesSection 37(b)
A conduct calculated to prejudicially affect the carrying on of the business
Section 37(c)
Willful and persistent breach of the partnership agreement
Section 37(d)Carrying on business at a loss
Section 37(e)It is just and equitable to do
soSection 37(f)