LAW OF PARTNERSHIP PB302 /pmm/zurya

INTRODUCTION A partnership is the relationship which exists between persons carrying on a business in common with a view to profit. It involves an agreement between two or more parties to enter into a legally binding relationship and is essentially contractual in nature. The law of partnership is governed by the Partnership Act 1961. MEANING OF PARTNERSHIP Section 3(1) of the Partnership Act 1961 defined the relation which subsists between persons carryning on a business in common with a view of profit. Relation Partnership need to be form in a contract agreement be it express or impliedly, hence, partnership and contract are closely Spicer Ltd v Mansell FACT: The defendant and Mr. X plan to have a business in the form of a limited company. Prior to the incorporation, Mr. X order goods from the plaintiff's company (supplier) intending to used it in the company's business. The goods were delivered to the defendant's address. The defendant and Mr. X had open an account in the name of of the proposed company, but the account was never used by them. Mr. X subsequently become insolvent and the supplier sued the defendant for the price of the goods on the ground that the defendant and Mr. X were carrying on business together ISSUE: Whether parties who get together to form a company will be considered as partnership or not HELD: The fact that they were working together to set up a

LAW OF PARTNERSHIP PB302 /pmm/zurya

company does not make them doing business with a view of making profit, hence, there is no partnership Number of partners must be more than one person to constitute a partnership Case of Tan Teck Hee lwn Cheng Tian Peng (1915)

Business Section 2 Partnership of act 1961 define includes every trade, occupation or profession Restricted to what are regarded by businessman as commercial or professional businesses Case of Customs & Excise Commissioner lwn Lord Fisher (1981) 2 ALL ER 262 Case of 225, Profit there is agreement between persons to carry on the business for profit. Case of Re Spanish Prospecting Co Ltd (1911) 1 Ch 92, Malayandi Chetty lwn Narayanen Chetty 36 IC

RELATION

Express or implied

NUMBER OF PARTNER

2 -20 / 2 50 Commercial or

BUSINESS

professional businesses

LAW OF PARTNERSHIP PB302 /pmm/zurya

PROFIT

Carry on business for profit

DIFFERENCES BETWEEN CORPORATION a. Number of members Partnership - Section 14 (3)(b) Company Act 1965 and Section 47 (2) Partnership of Act 1961 define Nothing in this Act shall be read to permit any association of more than twenty persons to be formed or to carry on any business in partnership contrary to paragraph 14(3)(b) of the Companies Act 1965 [Act 125]. Corporation No maximum company b. Ownership of properties Partnership - Jointly owned by the individual/ individuals who owns business Corporation shareholders. c. Legal responsibilities for debts Partnership not limited it owned by the company not the numbers except private

LAW OF PARTNERSHIP PB302 /pmm/zurya

Corporation - Limited to remaining unpaid amount on the members' shares d. Legal act Partnership legal action can be taken Corporation - it can be sued; it can enter into contractual agreements.. e. Dissolution Partnership may be dissolved informally (refer partnership agreement ) Corporation formal procedure ( by winding up and liquidation)

CONSIDERATIONS AFFECTING EXISTENCE OF PARTNERSHIP a. Act ) Join tenancy, tenancy in common, joint property or part ownership does not of itself create a partnership as to anything so held owned, whether the tenants or owners do or do not share any profits made by the use thereof. Case of : French vs. Strying (1857) NS 357 Co ownership of property ( section 4 (a) Partnership of

LAW OF PARTNERSHIP PB302 /pmm/zurya

A & B. being joint owners of a race horse, it was agreed between them that A. should keep and train and have the general management of the horse, conveying him to and entering him for the different races ; that 35s. per week should be allowed for his keep ; and that the expenses of keep, &e. should be borne jointly by A. and B., and the horses winnings be equally divided between them. A. having paid all the expenses of the keep and management of the horse, and there being no winnings to divide. Held, that, even assuming that this agreement constituted a partnership between A. and B. (which the court, dissentiente Cockburn, CJ, thought it did not), A. was entitled to recover from B. a moiety of the disbursements made by him on account of the horse, as being in the nature of an advance of capital for B. b. Sharing of gross returns ( section 4 (b) Partnership of Act )

Sharing the gross returns does not of itself create a partnership, whether the persons sharing such returns have or have not a joint common right or interest in any property from which the returns are derived. Case of Lyons vs. Knowles c. Sharing of profits ( section 4 (c) Partnership of Act ) Sharing of profits is prima facie evidence of partnership but this presumptions may be rebutted by showing that the purpose of sharing was for some other reason. Case of Murray vs. David (1930)

LAW OF PARTNERSHIP PB302 /pmm/zurya

The following situations by themselves do not make a person a partner in the business : Seksyen Contoh kes

Payment of debt by installments out of profits

Sec 4 ( c ) (i)

Case of Badeley vs. Consolidated Bank (1888) Ch where a lender (plaintiff) advanced money to a borrower and took security over certain plant owned by the borrower. Further the lender was to receive interest and a share of the net profits. The borrower agreed to apply the loan moneys to the carrying out of work associated with his business and the lender had a right to enter the property if the borrower became bankrupt.

Sec 4 ( c ) (ii)

Remuneration to a servant or agent of the business

Case of Walker vs. Hirsch (1884) 27 Ch.D 460 Walker had been a clerk to the defendants firm when he and the firms proprietors entered into an agreement for Walker to be paid a fixed salary in addition to the right to participate in one eighth of profits and losses. Walker further agreed to deposit 1500 in the business while the agreement continued, receiving 5% per annum interest. The firms name was not altered, nor was Walker mentioned in firm circulars or bills. Furthermore, Walker was not introduced to customers as a partner, did not sign bills of exchange, and signed letters and receipts Walker for [the firm]. In 1884 the defendant gave him notice and excluded him from the office. Walker sought to wind up the business, sought an injunction restraining dealings with the businesses assets, and sought the appointment of a receiver and manager. The trial judge refused the injunction and appointment of a receiver and ordered the defendant to pay the 1500 into court. The trial judge, Lindley LJ, focussed upon Walkers lack of ability to control the defendant in the management of the business. Walker was regarded as a servant not in the position of a partner having an equal voice or control in the management of the concern. Therefore the injunction was refused.

Sec 4 ( c ) (iii)

Payment of an annuity or a potion of the profits to a widow or child of a deceased partner in the business
Case of I.R.C. vs. Lebuss Trustees (1946) 1 All. E.R. 476 the Commissioners attempted to recover income tax on the amounts which were due under a will to a widow of a partner. The court found that a beneficiary under a will would only have to pay tax on the amounts which were paid to her during the years of assessment. The widow did not have to pay tax on a share of the profits earned by the business. This decision can be compared with Federal Commissioner of Taxation v Whiting (1943) 68 CLR 199, where it was held that a beneficiary of a deceased partners estate is not taxable on income earned from the partnership unless the beneficiary has a present right to have the income paid to him by the trustees.

Sec 4 ( c ) (iv)

Payment of the interest which varies with the profits on a loan advanced for use in the business under a written contract.
Case of Re Young (1896) 2 Q.B. 484 A and B entered into a written contract whereby A lent money to B for his business and in return a would entitled durinh the continuance of this agreement, to draw from the profits of the business the weekly sum of . There are also an option for A to become Bs partner but a never exercised this option. A

LAW OF PARTNERSHIP PB302 /pmm/zurya

was not B s partner.

Sec 4 ( c) (v)

Payment to the seller of the goodwill of a business in the form of a share of the profits of the business.
Case of : Pratt lwn Strick (1932) 17 T.C. 459 A professional man sold his practice and goodwill to another. In the agreement, he would continue to generate goodwill for his purchaser for a period in return for a share of the profits.

Exercises 1. Nur, Mia and Zara have decide to form a partnership business for selling books and among agreed terms is one which excludes Mia from sharing any profit. Is Mia a partner? Give reason. 2. If the partnership plans to engage Akmal to manage the business and one terms of employment is that Akmal will participate in the profit of the business, is Akmal a partner? Give reason.

LAW OF PARTNERSHIP PB302 /pmm/zurya