COMPANY LAW

BUSINESS ORGANISATION
SOLE

PROPRIETORSHIP
PARTNERSHIP
COMPANY

Sole proprietorship/
partnership/ company
Membership
Agreement
Registration
Management
Risk
Capital

Sole proprietorship &

partnership
Sole

trader: one person in business

for himself
Partnership: an organisation of two or
more persons associated together for
the purpose of conducting a business
or the relation which subsists
between persons carrying on a
business in common with a view of
profit.
Both are unincorporated associations

company
An

incorporated association
Formation
Ownership and control
Capital

The feature
Number

of members
Ability to hold property
Debts and liabilities
Mode of taking legal proceeding
Duration and dissolution
Formalities
Business name

PARTNERSHIP
S. 3(1) of the Partnership Act
1961 as the relation which
subsists between persons
carrying on a business in
common with a view of profit.

Partnership
This relationship when established governs the
right and duties of the parties.
a partnership cannot by itself make a contract,
employ people, commit crimes or be sued.
Since partnership is a contractual relationship
which subsist between persons carrying on
business in common with a view of profit, the
Contracts Act 1950 applies to a partnership
agreement.
Keow Seng & Co v Trustees of Leong San
Tong Kho Khongsi :firm name - merely a
convenient method for denoting those persons who
constitute the partnership firms.

ELEMENTS OF PARTNERSHIP
Relation
It can either be express or implied. In other
words, the agreement may be in oral, in
writing or by conduct.

It is not necessary that partners have a

formal/written agreement. Dr Rajan Sinha
v Dr. P C Herman (1988)

Business
business

is defined in s 2 of p/s
Act to include every trade,
occupation or profession-some
commercial venture.
excludes most members clubs
and other non profit making
associations: wise v perpetual
trustee co (1903).

carried on in common
A

partnership requires the involvement

of two or more persons in the same
kind of business.

In

Chooi Siew Cheong v Lucky Height

Development Sdn Bhd [1995] 1 MLJ 531
there was no p/s resulting from a joint
venture
agreement
between
a
landowner and a housing developer
because each party to the agreement
intended a wholly separate business

with a view of profit

S

3(1) requires a profit motive -with a

view of profit. there must be financial
return from the business.
However, there are two interpretation
to the above requirement.
i.
it is sufficient to establish profit
motive
ii. profit motive alone is not enough
unless sharing profit is proven
together with profit motive.

Considerations affecting
existence of partnership
S

4(a): joint tenancy, tenancy in

common, joint property, common
property, or part ownership does not of
itself create a partnership as to anything
so held or owned, whether the tenants or
owners do or do not share any profits
made by the use thereof.
4(b) the sharing of gross returns does not
of itself create a partnership, whether the
persons sharing such returns have or
have not a joint or common right or
interest in any property from which or
from the use of which the returns are
derived

Considerations affecting
existence of partnership
S

4 (c) the receipt of person of a share

of a profits of business is prima facie
evidence that he is a partner in the
business, but a receipt of such a share,
or of a payment contingent on or
varying with the profits of a business,
does not of himself make him a partner
in the business.
the receipt of a person of a debt out of
the accruing profits of a business.
remuneration of a servant or agent.

Formation of partnership
firms

name s 6
Nature and place of business
Provision relating to capital, profit and
losses s 26
Matters relating to the management of
the firm. S 26
Duration
Partnership property
Arbitration clause

capacity
lack

of capacity:
1-minor
2-insane person/person of unsound
mind
3-undischarged bankrupt

Relation between
partners and outsiders

Section 7

authority
An act of a partner is binding upon
another if he is doing an act
within the authority as follows:
i-actual/express
ii-implied (usual/presumed)
iii-apparent (ostensible)-clearly
evident

ACTUAL AUTHORITY
an

agent may bind his principal

to any act which is expressly
authorised by his principal.
Actual authority may be derived
from an agreement prior or after the
establishment of partnership or oral
agreement. It may override other
authorities irrespective of what kind
of business and it also may place
restriction on the power of one
another.

2-IMPLIED (USUAL/ PRESUMED

AUTHORITY)
implied authority is the authority which
arises from the status of the particular
type of agent involved. If an agent
does an act which the third party would
regard as a normal thing for the type of
agent to do, then the principal will be
bound by it.
Thus, this implied authority arises from
the nature of the agency; i.e. what an
agent usually does under that specific
business or usual way of carrying on
business.

APPARENT/OSTENSIBLE AUTHORITY
Apparent authority arises where
the principal has held out the
agent as having an authority to
do a particular act /thing that the
third
party
relies
on
that
representation.
apparent authority exist due to
representation by the principal.

Section 11
if

there is no authorization from other

partners and no implied authority, the
firm will not be liable. (personal liability)
Every partner is liable jointly with the
other partners for all debts and
obligations of the firm incurred while he
is a partner
An estate of a deceased partner is liable
severally for any debts or obligations

RIGHTS AND DUTIES OF

PARTNERS

RIGHTS AND DUTIES OF

PARTNERS
The

terms of partnership may be set up by

the partner themselves
What is important is that there must be
agreement
whether-orally/
verbally;
by
conduct or by writing.
if

the terms are to be varied, the partners to

the contract must consent to it
consent-expressly or inferred from the parties
course of dealing i.e.by referring to series
of transaction before any particular situation
arises.
whether an express or implied term of the
agreement has been varied by a course of
conduct is a question of fact.

RIGHTS AND DUTIES OF

PARTNERS
course of dealing
Cruikshank v Sutherland, the firm was established in
1914. Amongst its terms are:
the p/s agreement provides that the p/s account must be
prepared as at 30 April of each year (for the preceding
year). In the case of deceaseds partner, his share will be
determined by reference to the account drawn up for the
year in which the death occurred.
The accounts for 1914 and 1915 both showed assets at
book value. In October 1916, the same year, one of the
partners, Cruikshank died. The accounts of 1916 were
prepared on the footing of bringing in the assets at their
book value.
Question arose as to whether his share of the partnership
profit had to calculated on the fair value of the property or
on its book value. The remaining partner said that by the
course of dealing the value of the property should be
calculated on its book value.
Held that there was no course of dealing because this was
the first time a partner died.
*(course of dealing means a series of action)*

S 26: Rules as to interests

and duties of partners
26

(a) share equally in the capital and profits of

the business and contribute equally towards
the losses.
26(b) (i) a partner has the right to be
reimbursed for expenses incurred whilst
acting within his authority.
26 (b)(ii) gives a partner the right to act in
cases of necessity. This provision is an
extension of agency of necessity.
As a general principal, If he act without
authority of co-partners, he can be indemnified
against the loss only if he prove that he was
1-unable to communicate with the principal and
2- he has acted in good faith for what was
necessary in the principals interest.

S 26: Rules as to interests

and duties of partners
Kok

Hong Leong v Seow Kah Cheng, the

respondents were partners in a trading firm. They
defended an action brought against the firm for
breach of contract. The respondents were
substantially successful on one of their defence.
Each side was ordered to pay their own costs.

In

an action for dissolution of the partnership, the

court ordered the respondents costs in defending
the case to be paid out of the assets of the firm.
(appellant appealed).

C/A:

by defending the action against the firm, the

respondents had caused the p/s property to be
preserved. Thus they were entitled to be
indemnifies for the costs incurred.

S 26: Rules as to interests

and duties of partners
26(c)

: to distinguish between a contribution of

capital by a partner & further advance by a partnerwhich create form of partner and creditor
26 (d) a partner is only entitled to interest on the
capital subscribed by him only after the
ascertainment of profit.
26 (e) management and control. Usually the
agreement will specify who should manage and has
the control of the firm.
26(f) no partner shall receive remuneration. Cross
ref: s 4 (c) (ii)
However, the court may give him remuneration for
the extra work he did.
Ex in Airey v Borham (1861) it was held that a
partner who does extra work will get extra
remuneration by the order of the court.

S 26: Rules as to interests

and duties of partners
26(g)

introduction of a new partner

Byrne v Reid (1902) the clause gave each
partner the right to nominate and introduce any
person into the firm. Byrne nominated his son
who was employed in the firm, but the other
partners refused to admit him. They then
consented to his admission but failed to
execute the proper documents for his
admission.
C/A decided that since the clause was so wide
and contained no restrictions the other partners
had consented in advance to the sons
nomination.

S 26: Rules as to interests

and duties of partners
In

Re Franklin and Swaythlings Arbitration,

the clause allowed a partner to introduce any
qualified person as a new partner provided that
the other partners should consent to his
admission-such consent was not to be
unreasonably withheld. It further provides any
dispute as to whether the consent had been
unreasonably withheld should be referred to
arbitration.
Franklin nominated his son as a new partner but
the other partners refused to admit him. The son
referred the matter to arbitration and the
arbitration held that the son has no locus
standi.
The court held that consent of the other partners
was necessary and such consent was not given.

S 26: Rules as to interests

and duties of partners
26(h)

settlement of dispute.
If there is any difference as to ordinary
matters which relate to the partnership
business-this may be decided by majorittyi.e.to day to day decisions.
However, ifthe dispute relate to the nature
of
the
partnership
business
i.e.
fundamental matters- there is a need for
consent from all existing partners.
In Bissel v Cole, C/A held that a decision to
expand the business of the firm from travel
agency to tour operator was a change in
the nature of the business. Thus it requires
the consent of all the partners.

S 26: Rules as to interests

and duties of partners
Highley

v Walker, it was held that

the question of admission of the
son of one of the partners into the
firms workshop to be trained in the
firms business was an ordinary
matter in connection of the
business.
Further, the court found that the
decision was made on good faith.
Thus, it binds all the partners.

S 26: Rules as to interests

and duties of partners

26(i) the term partnership book was clarified in

Krishinchand Bahjwani v Sunil Bohjwani. Kan
Ting Chin J said to the effect
-a partner is entitled to access to the books and is not
restricted to the audited statement
the
term partnership book should not be
constrained to be limited to accounting records and
should include other records kept by the partnership,
for example minutes of partners meeting.
Bevan

v Webb, for example, the court allows a

partner to appoint a nominee to carry out the
inspection of the firms account on his behalf. The
nominee must be prepared to give an undertaking to
the other partners that he will not disclose any
information obtained during the course of his
inspection, to any person other than a partner that
nominated him.

EXPULSION OF PARTNERS (s
27)
there

can be no expulsion without an

express clause.
In Clark v Leach, there were two
partners in the firm which was a
partnership at will. when one partner
was expelled, the court held that the
expulsion amounted to dissolution.
However, in Walters v Bingham,
where the firm was a large firm of
solicitors, the court held regarded an
expulsion as being fundamentally
different from a dissolution.

EXPULSION OF PARTNERS (s
27)
As

a general rule, 3 questions are

considered in considering expulsion
clauses:
i)is the expulsion within the terms of
the clause itself; -yes
ii)do the rules of natural justice apply to
the expulsion procedure and if so, have
they been complied with;-yes and
iii)did the expelling partners act in good
faith and in accordance with their
fiduciary duties.-yes.

EXPULSION OF PARTNERS (s
27)

1)To see whether the expulsion was within the terms of

the clause.
In Carmichael v Evans [1904], there was an expulsion
clause in the agreement for any flagrant breach of the duties
of partner
A junior partner in the firm was convicted of travelling on a
train without paying his fare and so defrauding the railway
company (on more than one occasion). He was expelled under
the clause and the court held that he has been validly
expelled.

There are occasions where the court will not strictly apply the
letter of an expulsion clause if that would produce a
nonsensical situation.
Ex: in Hitchman v Crouch Butler Savage Associates, an
expulsion clause required the signature of the senior partner in
order for it to be valid. This clause was held not to apply where
the partner to be expelled was a senior partner because it was
not possible for a partner to expel himself since expulsion was
dismissal against the will of the person being expelled.

EXPULSION OF PARTNERS (s
27)

2) Whether the rules of natural justice

apply to the expulsion procedure and if
so, have they been complied with.

In Barnes v Young [1898] there was a

clause which allowed the majority to expel a
partner for breach of certain duties. The
clause also provided that in the case of the
dispute, the matter should go to arbitration.
The majority purported to expel Barnes but
gave no details of the act complained.
The court declared the expulsion unlawful on
the ground that the majority failed to inform
him as to the cause of complaint and to allow
him to answer the allegation.

EXPULSION OF PARTNERS (s
27)

3) Did the expelling partners act in

good faith and in accordance with
their fiduciary duties.
-Ensure that it is done in good faith
-The person has breached his/her
fiduciary duties.

DISSOLUTION

Dissolution
3 ways for partnership to be dissolved.
by agreement
automatic dissolution
by order of the court
S

34(1) by agreement
-subject to any agreement, a p/s is
dissolved:
-(1)(a) if a partnership is entered into for a
fixed term by the expiration of that term.

Dissolution
-(1)(b) if entered for specific purpose, it is
dissolved upon the completion of such
purpose. Theres no fixed term
cross reference s 29(2).
-(1)(c) if entered for an undefined time, it is
dissolved by giving notice of dissolution.
This is also known as p/s at will; no
definite time. Cross-reference with s 28
(1). Where no fixed term has been agreed
for the duration of the p/s, any partner
may determined the p/s on giving notice
to other partners.

Dissolution by agreement
S

29(1) where a p/s entered into for a

fixed term is continued after the term
has expired, and without any express
new agreement, the rights and duties
of the partners remain the same as
they were at the expiration of the
term.
34 (2) when is the effective date of
notice of dissolution?
The p/s is dissolved as from the date
mentioned in the notice or if no date is
mentioned, as from the date from the
communication of the notice.

Automatic dissolution

S 35(1) subject to any agreement between

the partners, every p/s is dissolved as
regards all the partners by the DEATH or
BANKRUPTCY of any partner.

36: a p/s firm is automatically dissolved

when there is illegality of p/s business.

35(2): the firm may be dissolved where the

partnership property is charged to creditors.
(s 33-right of assignee of share in
partnership)

This

dissolution however, does not occur

automatically-but at the request made by
the other partners.

Dissolution by order of the

court

S 37 (a) makes insanity a

discretionary ground for
dissolution. The dissolution may be
made by the lunatics partner or
on his behalf by a representative.
37 (b) includes all forms of
incapacity that are proved to be of
a permanent nature, other than
lunacy.

Dissolution by order of the

court

37(c) it is not necessary for the

applicant to prove that the conduct of
his partner occurred in the course of or
was in a way connected with the
partnership business for this provision
to be operative.

Pearce

v Foster, the court held that it

was not necessary for the applicant to
prove that the partnership has suffered
any actual business loss but merely
that if the conduct had come to the
knowledge of the firms customers, the
business would have been injured.

Dissolution by order of the

court
37(d):

this may cover two situations

where the breach of the agreement is
intentional and it is not practicable for the other
partners to carry on the business with him.
although the conduct of a partner may be
unintended, it makes the carrying on of the
business in p/s impracticable.
Cheeseman v Price, the offending partner
had failed to enter small sums of money
received from customers into the accounts as
he was required to do under the agreement.
This happened 17 times. The court held that
the persistent failure of the partner was a
ground upon which the court may a decree of
dissolution.

Dissolution by order of the

court
37(e)

carrying on the business at a loss.

It

is important to prove that making a profit is

impossible in practice. This provision does
not apply if evidence indicate that the loss
was of a temporary nature.
In Handyside v Campbell, a p/s had been
running at a loss but this was shown to be
the result of the absence of the petitioning
partner due to illness and that given proper
attention, the business could run at a profit.
The judge refused to make the order. The
loss was attributable to special
circumstances and not to any inherent defect
in the business.

Dissolution by order of the

court
37(f)

just and equitable ground.

this provision allows the court a very wide
discretion in making a decree of dissolution.

This provision was considered in Re Yenidje

Tobacco co. Ltd. In this case Dr Barnes was a
member of a p/s of general medical practitioners.
Dr Barnes later had differences of opinion with
the co-partners and refused to enter into any
discussions concerning the future of the p/she
also refused to agree to a dissolution.
The court of appeal upheld the judges order for a
dissolution of the firm under s 37(f). the court was
satisfied that the relationship of trust and
confidence between the parties had irrevocably
broken down.

Rescission
Rescission of p/s agreement.
A p/s agreement may have been induced by a
misrepresentation, by one partner to another.
Misrepresentation-may either be fraudulent negligent or
innocent.
If such situation occurs, the party so induced can rescind
the contract which of course has the effect of dissolving
the p/s.
In Msia, the remedy is in the contracts Act but in England,
the remedy is in the Misrepresentation Act. However, s 43
of the P/s Act provides additional remedies for
misrepresentation in the partnership context.

In Senanayake v Cheng, a statement that the business

was a gold mine when in fact it had enormous bad debts
enabled the court to rescind the contract.

S 43 basically reflect that entering into a p/s agreement

brings about liabilities to third parties. Thus the rights of
subrogation in 43(b) and indemnity in 43(c) will apply even
if the misrepresentation is innocent.

Winding up
the

effect of a full dissolution is to

finish the p/s as a going concern.
The next step is to wind up the
business i.e. the collect in and
value the assets, pay off the p/s
debts and distribute the surplus, if
any to the former partners

40: continuing authority for

purposes of winding up

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