Partnership

Def: s. 3(1) PA: a relation wh. subsits between

persons carrying on a business in common with a
view of profit
s.3(2) excludes: registered company, co-operative
society, company or association formed under the
law that has effect in Malaysia, or by Acts of the
UK parliament, Royal charter

Important elements of a partnership

1- members
s. 3(1), s. 14 and s. 47(2) maximum members
= 20; professional partnership = 30. (s.14(3)(a)(b))
Tan Teck Hee v Cheng Tian Peng
Carrying business with 25 members was not a valid
partnership. Cannot take legal action.
Shim Fatt v Leila Road Bus & Co, P paid deposit
to D, a firm with more than 20 partners. P cannot
sue D because a legal action cannot be taken again
an illegal firm.

2- Agreement bet the partners to carry business in

common
s. 2 - Business includes trades, occupation or
profession.
Soh Hood Beng v Khoo Chye Neo,
several people established a body which advanced
money to its members. The money were obtained
from the members and every member can take the
loan one after the other. Held: not a business that
constitute a partnership.
Smith v Anderson
Business refers to repetitive activities.

In common together or some partners carry the business for the

other partners
3- profit
s. 3(1) did not define profit
Re Spanish Prospecting Co. Ltd.
"The word 'profits' has...a well-defined legal meaning, and this
meaning coincides with the fundamental conception of profits
in general parlance, although in mercantile phraseology the
word may at times bear meanings indicated by the special
context which deviate in some respects from this fundamental
signification. 'Profits' implies a comparison between the state
of a business at two specific dates usually separated by an
interval of a year. The fundamental meaning is the amount of
gain made by the business during the year. This can only be
ascertained by a comparison of the assets of the business at

In Soh Hood Beng (See above)

No intention to gain profits. One of the reason why the court
held that the firm was not a partnership.

4-other statutory elements that affects the existence

of a partnership
a) s. 4(a) Co-ownership of a property
Joint tenancy , joint property, part-ownership etc,
not necessarily proof of a partnership
Example: French v Strying
Joint owners of a horse was not partners in a
partnership

b) s. 4(b)-Sharing gross profits

Whether parties have common interest or joint right in
any property not necessarily partners
Burnard v Aaron and Sharpley
One of joint owners of a ship took over exclusive
management of the ship bearing all expenses and
pays 1/3 of the gross earning to the other joint- owner,
they were not partners

c) Sharing of profits
s. 4(c)- sharing of profit evidence of partnership.
But not in all c/stances:
i-A loaned RM20,000 to a firm, B. B paid by
installment from its profits. A not necessarily a
partner to the firm.
ii-Remuneration to a servant or agent of business
Walker v Hirsch
P, ex employee of a a firm agreed to advanced
money to the firm with a repayment in form of salary
and 1/8 of the firms net profit. He was not a
partner.

iiiannuity, or a portion of the profits to widow

or a child of a deceased partner
iv-payment of interest wh. varies with the firms
profits on a loan for use in the firms business.
v-payment to the seller of a goodwill - share in
the firms profits

Formation of partnership
Through partnership agreement. S. 21 rights
and duties of partners can be varied with their
consent, express or implied.
P/ship can exist for as long as the partners
wish. It can be terminated anytime.
Partner/partners wanted to terminate give
notice to other partners. (s. 28(1))

Types of partners
i-General partner- a partner in full sense
ii-active partner- actively involve in the
management of the firm
iii-sleeping partner-not active in the
management of the firm
iv-quasi partner- not a partner but liable for
the partnerships debt as a result of holding
himself out as a partner.

Partners authority to bind the firm

Every partner is an agent of the firm and other
partners.
S. (7)-If he carries out in the usual way business the
kind of which carried out by the firm binds the firm
and other partners.
But if he has no authority to act, & the 3rd party
knew or ought to know that the partner has not
authority other partners are not bound by his
action.

a) Implied authority
Partner's implied authority- consistent with the firms
business. Depend on the c/stances of the case.
Some judicial decisions show that a partner has an
implied authority when he:
i)Sells the firms goods and chattels
ii)Puchases on the firms behalf goods of the kind
usually used in the firms business
iii)Receives payment of the firms debt and gave
receipt thereof
iv) Engages and dismisses staff

v) If the firms sell goods partner may issue

negotiable instruments in the firms name;
borrow money on the firms credit; instruct
solicitor in an action against the firm to
recover debt.
h/ever partner has no implied authority to
execute a deed or to refer dispute to
arbitration.

b) Express authority
In case the action is not in the ordinary course of the
firms business the agent must be authorised by
the other partners. S. 9
Liability of Partners and Firm
a) Contractual liability
S.11 every partner jointly liable with other partners
for all debts and obligations of the firm incurred
while he was a partner

If he dies - estate severally liable for the unsatisfied

debts and obligations.
If B sue the firm; firm has insufficient asset to satisfy
the claim, B can go against the personal property of
the partners.
If B sue only one partner, he cannot later on sue other
partners if the first partner cannot pay all Bs claim.

b) Tortious liability
s. 12 Joint and several if the wrongs were
committed in the ordinary course of the partnerships
business / with the authority of other partners
Hamlyn v Houston & co.
A partner obtained confidential information of a
competitor's business by means of a bribe. Held:
As he had done an act which was part of his business
to do legitimately, all the partners were liable for his
action.

c) Criminal liability
If the action requires mens rea intention to
commit crime it is the personal liability of the
partner.
d) Specific liabilities
i- s. 13 when a partner, acted within his
authority, received money or property
belonging to a 3rd person and misused the
money or property; or

ii-the firm in the ordinary course of its business

accepted money or property belonging to 3rd
person, and one or more partners of the firm
misused that money or property, while the money or
property is under the care of the firm;
= firm liable to make good the loss to the 3 rd party
Blair v Bromley
Money was paid into the firms account to be
invested. One of the partners misused the money.

All partners were liable for the loss because it was

w/in the firms business to accept money for
investment.
e) Misused of trust funds
s. 15 breach of trust by one partner other
partner not liable unless they knew about the
breach.
Ex parte Heaton.
Firm belonging to a father and children. Misused of
trust funds by the children. Father not liable for the
loss because he had no knowledge of the breach.

f) Holding out
s. 16. If a person holds out himself as a partner
Based on estoppel when a person holds
himself out as a partner though not a partner.
(this holding out may be caused by other
persons or by the person himself)
3rd party believed he is a partner and acted on
that belief that person cannot later on claim
that he is not a partner. Liable for the firms
debt.

Conditions=
i-Applies to a person who allowed himself to be held
out as a partner or when he holds himself out as a
partner;
ii- the holdings out can be known by the 3rd person
from the so called partner himself or from other
sources (even w/out the so called Partners
knowledge);
iii- 3rd person must have been influenced by the
manifestation in making a decision to advance money
to the firm

g) Incoming and retiring partners

s. 19 (1) immediately liable as a partner upon
becoming a partner but not for liability incurred
before he becomes a partner unless there is a special
agreement. Partners may sue on the agreement but
not the creditor of the old firm.
h) Retiring partner
s. 19(2) - Liable for the debts incurred before he
retired. If other partners and the creditors agree, a
partner who lost hope of getting any profit
from the firm, abandoned the firm but not retire, may
be free of the firms liability. (s.19(3))

For new debt incurred after retirement liable unless

has given notice about his retirement to the public or
the relevant people that he has retired. S.38(1).
Otherwise may be treated as apparent member.
Re Siew Inn Steamship
A retired partner inserted a notice of retirement in
several newspapers to which old customers were
regular subscribers. Later old customers lent money
to the firm. When the lender claimed the debt from
the retired partner, it was held that for old customer
actual notice must be given to the customer.
Ineffective notification liable as partner

P/ship property s. 22 -26 & 41

Property must be exclusively used for the benefit of
the firm & in accordance with the p/ship agreement.
What is p/ship property?
Ponnukan v Jebaratnam
the question whether a property is that of a p/ship
or a separate property of the [partner] depends
upon whether there is an agreement among the
partners, express or implied, touching such property.
In absence of the agreement, [the question is]
whether there is an intention of the partners to treat
the property as a p/ship property.

If no intentionthe property is the separate property

of the partner although it may be used for, or even
essential to, the p/ship business and the p/ship may
even be debited with the outgoings and expenses of
the property.
In this case P obtained an option to sell land for
RM60,000. formed p/ship with J to develop the land.
Failed to get financial to purchase the land. J bought
the land with his money and money obtained from his
relatives and bank. P seek a declaration that the land
was held on trust for the p/ship.

Held on appeal: the land was not the p/ship property.

No agreement to that effect. It was also not paid by
the firms funds.
R/ship between partners
The relationship is created by an agreement between
them.
The agreement contains rights and duties; the
conduct and management of the firms business;
capital to be provided by each partner; proportion of
the profits to be shared by the partners.

In case no specific provision in the agreement,

rights and duties under the PA apply.
h/ever, s. 21 - duties and rights of partners
whether provided in their agreement or under the
Act can be varied by mutual consent of the partners,
express, implied or inferred from their course of
dealing.
If there is no p/ship agreement partners rights and
duties are:
i-equal share in the capital, profits and in the loss.
s.26(a)

ii-firm must indemnify partners in respect of payment

made and personal liability incurred in the ordinary
and proper conduct of business; or in anything done
for the preservation of the firms property. S.26(b) not
applicable if the partner acted negligently or
fraudulently
iii-entitled to interest rate of 8% per annum if he made
payment or advance to the firm for the purpose of the
p/ship. S. 26(c)
iv-no partner is entitled to interest on capital before the
profits has been ascertained. S.26(d)

v- every partner may involve in the management of the

business. S. 26(e)
vi- partners cannot get remuneration for acting in the
p/ship business. S. 26(f)
vii-no one can be admitted as a partner w/out the
consent of other partners. S. 26(g)
Viii-differences concerning the partnership business if
involve ordinary matter should be settled based on
majority rule, in case of changing the firms business
consent of all partners
iX- p/ship book kept at the place of business or at
the principal place if more than one place of
business. Every partner may inspect the book when
he thinks fit.

Further duties of partner:

i-render true accounts and full information on all
things affecting the partner or his legal representative
ii-account any secret profit or benefit derived w/out the
consent of other partners any transaction concerning
the p/ship, or any use of the p/ship property, name or
business connection by him
iii- not to compete with p/ship in business of the same
nature w/out consent of all partners. If he did w/out
consent he must give the firms all profits made by him

Dissolution of a p/ship
s.34
1- by agreement
a) Partners may mutually agree to end the p/ship at
any time
2- by operation of law
a) If the p/ship is for fixed term, or for a single
adventure dissolve when the fixed term
expire or when the adventure is completed or
terminated
b) When a partner sent a notice of his intention to
end the partnership to other partners

3-death or bankruptcy
If any partner died, or declared bankrupt - automatic
dissolution unless the agreement provided otherwise.
s. 35(1)
4-by charging on share
If a partner subjected his p/ship share to be charged
for the debt wh. is not related to the p/ship business
other partners may dissolve the p/ship. s. 35(2)
5-by reason of illegality
If any event occurs that made it unlawful for the
p/ship business to be carried on or the p/ship to
continue automatic dissolution . s36

6-by court order

s. 37 on application by the partner. Court may order
dissolution in the case:
i-insanity of a partner
s. 37(a) when a partner found to be a lunatic or
shown to be of permanently unsound mind
ii- s. 37(b)-permanent incapacity to perform his duties
under the p/ship contract. (not the applicant)
iii- s. 37(c) conduct that prejudicially affected the
carrying on of the p/ship business. Example
dishonesty (not the applicant)
iv- s.37(d)- willful or persistent breach of the p/ship
agreement (not the applicant)

v-s. 37(e) when the p/ship business can only be

carried on at loss
vi- s. 37(f) when in the courts opinion it is just and
equitable to dissolve the p/ship. Example only two
partners and they have reached a deadlock
To avoid liability partners have to give notice to public
and old customers about the dissolution. After
dissolution no one can bind another by his action
except what is necessary to wind up the business and
complete unfinished matters.