ABBL3033 Business Law – Chapter 10: Partnership

A. PARTNERSHIP (Conventional Partnership)

10. INTRODUCTION
A partnership is an unincorporated company. It is regulated by registration with the
Registrar of Businesses (ROB) under the Registration of Businesses Act 1956.

The Partnership Act 1961 provides for the regulation of the relationships of the partners in
the partnership.

10.1 MEANING & NATURE OF PARTNERSHIP

Section 3(1) of the Partnership Act 1961 defines partnership to mean a business relation
carried out between two persons or more with a common aim of making profit.

Section 2 - ‘Business’ includes every trade, occupation or profession (and it involves

goods or services).

These are not partnerships:

Section 3(2) specifically excludes co-operative societies, registered statutory companies
under the Companies Act 2016 and corporations established under other statutes.

10.1.1 Formation
i. Lawful purpose - the partnership must be formed for a lawful purpose. Thus, a
partnership to share in the profits of a crime is illegal.

ii. The business is governed by the Partnership Act 1961 which provides for the
regulation of the relationships of the partners in the partnership.

iii. Registration - the partnership must be registered with the registrar of businesses
under the Registration of Business Act 1956. Must register immediately before
commence of business.

iv. Formal or informal - the relationship of the partners must arise from an agreement
orally or in writing, or called as terms of partnership, which can be in the form of an
agreement under seal or a simple agreement signed by the partners, or an oral
agreement. If there is no such agreement or such matters are not included in the
agreement, then the Partnership Act 1961 will apply.

v. Firm and Firm Name – Section 6 - persons who have entered into a partnership
with another are called collectively a FIRM, and the name under which their
business is carried on is called the firm name e.g. ABC & Associates or XYZ &
Partners.

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vi. Number of persons to form a partnership - there must be more than one person to
constitute a partnership.

In a normal business partnership the limit is min. 2 – max. 20 persons.

Professional partnership – there is no limit on the number of partners.

(Professionals – e.g. doctors, accountants, lawyers, engineers, architects etc.)

vii. Failure to register the partnership under the Act would not mean that the partners
cannot enforce their rights against each owner - Gulazam v Noorzaman and
Sobath (1957).

viii. If a person is required to register his business under the Act carries on that
business without registering the business then he commits an offence. – Rule17A
of Registration of Businesses Rules 1957

10.1.2 Capacity
i. General Rule - any person sui juris is capable of entering into a partnership
agreement.

(Sui juris means having full legal rights or capacity. Thus a person who wants to be
a partner of a firm must have the legal capacity i.e. he must have reached the age
of majority and of sound mind. A person of unsound mind is not competent to enter
into a partnership agreement).

ii. A minor may enter into a partnership with an adult but may not be liable for any
debts incurred by the partnership whilst he was still a minor.

10.1.3 Duration of Partnership

There is no fixed time frame. The partners are free to fix the duration of the partnership.

If there is no duration fixed, Section 28(1) and Section 34(1) provides that any partner
may terminate the partnership at any time by giving notice of his intention to the other
partners.

10.1.4 Advantages & Disadvantages of Partnership

Some of the main advantages and disadvantages of partnership are:

No: Advantages Disadvantages

1 i. ii. Easy to form a partnership i. It may be difficult to find suitable

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and commence business. ii. iii. partners.

Fewer formalities than to
incorporate a company with
its many regulations.
2 i. ii. Capital - requires a low start-
up cost to go into business.
Has a wider capital base
compared to a sole
proprietor.
Partners may not be able to work
together.
Not a separate legal entity -
Section 12
i. Unlimited liability to the point
that private resources may have
to be used to meet partnership
debts.
ii. Capital may still be inadequate
compared to a company.

3 i. ii. Ability to combining different Limited to 20 persons for normal

skills, expertise and business partnership except
resources of partners. A Professional partnership where there is
wider pool of knowledge, no limit on the number of partners.
skills and business contacts
as compare with a sole
proprietorship.

4 Free to bring in more partners for i. Partners are personally and

additional investment capital jointly liable for all debts of the
firm even if caused by the actions
of other partners. ii. Partners
can legally bind each other without
approval

5 Each partner is taxed individually, Division of profits and income between

meaning each partner includes the partners may not be clear.
business income on his personal
income tax return.

6 Liabilities and responsibilities can No perpetual succession i.e. it lacks

be shared with other partners.
succession as the duration of the
partnership is uncertain. (If any partner
is incapacitated by injury or illness,
withdraws, sell his interest or a new
partner is admitted into the business,
the existing partnership comes to an
end).

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7 Affairs of the business are kept The partnership ends with the
private. Public has no access to it. resignation, bankruptcy or death of a
partner as the partnership has no
separate legal entity on its own.

10.2 RIGHTS, DUTIES & LIABILITIES OF PARTNERS

10.2.1 Rights of Partners – Section 26

Subject to any agreement, the rights of partners are as follows:-

a) All partners are entitled to share equally in the capital and profits of the business
and must contribute equally towards the losses sustained by the firm (unless they
have agreed on a certain ratio in the capital and profits).

b) The firm must indemnify every partner for payments made and personal liabilities
incurred by the partner in conducting the ordinary business of the firm or for the
preservation of the business or property of the firm.

c) Any partner who makes payment or advances for the purposes of the partnership
which is beyond the amount of capital which he agreed to subscribe is entitled to
interest at the rate of eight percent (8%) per annum from the date of the payment or
the advance.

d) No partner is entitled to interest on capital before the ascertainment of profits.

e) Every partner may take part in the management of the business.

f) No partner is entitled to remuneration for acting in the partnership business.

g) No partner may introduce a person into the partnership without the consent of all
existing partners.

h) Differences that may arise concerning ordinary matters connected with the
partnership business may be decided by a majority decision, but changes as to the
nature of the partnership business requires the consent of all existing partners.

i) The partnership books must be kept at the principal place of business of the
partnership and every partner may have access to inspect and copy them.

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10.2.2 Duties of Partners

The principle of ‘utmost good faith’ between partners is implicit in every partnership
agreement.

a) Duty of partners to render accounts

Section 30 – partners are bound to render (present) true accounts and full
information of all things affecting the partnership to any partners or his legal
representatives.

b) Duty of partners to disclose all matters affecting the partnership

Section 30 also requires partners to render full information of all things affecting the
partnership. Partners are prohibited from using partnership information or
partnership connections for personal gains, regardless that it may not harm or be
detrimental to the partnership.

c) Duty of partners to account for profits made

Section 31(1) - Every partner must account to the firm for any benefit derived by
him, without the consent of the other partners, from any transaction concerning the
partnership or from any use by him of the partnership property, name or business
connection.

A partner is therefore not allowed to make any secret profits or secret benefits by
using the partnership’s property, or the firm’s name or the firm’s business
connections.

d) Duty of partner not to compete with the firm

Section 32 – if a partners, without the consent of the other partners, carries on any
business of the same nature as and competing with that of the firm, he must account
for and pay over to the firm all profits made by him in that business.

10.2.3 Liability of Partners

1) Partners are jointly and severally liable to each other in civil cases but not jointly in
criminal cases.

‘Jointly liable’ means that all the partners are liable together.

‘Severally’ means each partner will have to pay his portions of the liability.

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Section 11 & Section 14 provides that every partner is liable jointly with his
copartners and also severally for everything for which the firm becomes liable while
he is a partner.

Criminal liability: Partners are not jointly liable in criminal cases.

In Chung Shin Kian & Anor v Public Prosecutor (1980), during a raid by the officers
of the Trade Description Dept., on his tailor shop they found imitation clothes with
‘Texwood’ labels. Only the first partner was present in the shop. The second partner
was not present. Both were convicted and sentenced for an offence under the Trade
Description Act 1972. On appeal, only the second partner succeeded as there was
no evidence to implicate him.

Osman bin Hj Mohamed Usop v Chan Kang Sui (1924).

It was held that Section 14 provide for joint liability for breach of contracts but not
criminal liability.

2) Unlimited liabilities on every partner.

Any wrongful act by a partner will make his other partner liable as there is no
separate legal entity status for partnership.

3) Every partner is an agent of the firm.

Thus any act or omission committed by one partner binds the rest of the partners if it
is carried out within the ordinary scope of the firm’s business – Section 7.

4) Any acts executed in the name or on behalf of the firm is binding on all the partners
– Section 8.

5) If a third party has notice of the agreement between the partners that there are
some restrictions on the power of any one of more of the partners to bind the firm,
then the firm will not be bound in respect of any act done in contravention of the
agreement – Section 10.

6) A third party may hold the firm and the partners liable provided that:
i) The act was done for the purpose of the business of the firm; ii) The act must be
done in the firm’s ordinary course of business; iii) The act must be done by the
partner as a partner of the firm and not in his own personal capacity.

What if the partner is a minor?

A minor cannot incur or be responsible for any contractual liability for the firm’s debt. On
reaching the age of majority, a minor can, if he wishes, discharge himself from all future
debts of the firm terminating his partnership.

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William Jacks & Co. (Malaya) Ltd. V Chan Yong Trading Co. (1964)
Held: Once a minor has reach the age of majority and he fails to repudiate (reject) the
agreement, he will be made liable for the partnership debts.

10.3 DISSOLUTION OR TERMINATION OF PARTNERSHIP

Dissolution is the ending or termination of a partnership is depending on the partnership

agreement. The partners are entitled to share the assets of the partnership when it is
determined.

A partnership can be dissolved in one of the several ways such as:

1) Dissolution by Agreement
a. The partnership articles may state a fixed duration of the partnership and this
terminates upon expiry of the agreed period.

b. The partners may mutually agree to dissolve the partnership at any time.

2) Dissolution by Operation of Law

Dissolution of partnership by expiration or notice – Section 34(1) provides that
subject to any agreement between the partners, a partnership is dissolved

(a) If entered into for a fix term, the partnership is dissolved when the duration of
time fix reaches its full term – S.34 (1)(a);

(b) If entered into for a single adventure or undertaking, the partnership is

dissolved upon completion of that single adventure or undertaking, e.g. a one
time business venture or assignment, which will come to end upon completion
of that business venture or assignment – S.34 (1)(b);

(c) if entered into for an undefined duration of time, by any partner giving notice to
the other partners of his intention to end the partnership by serving a notice –
S.34(1)(c).
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3) Dissolution by death or bankruptcy

Section 35 (1) states that subject to any agreement between the partners, every
partnership is dissolved upon the death or bankruptcy of any partner.

If a partner send a notice of termination of partnership and dies before the other
partners received the notice, the partnership is said to be dissolved by death of the
partner and not by notice.

4) Dissolution by charge
Section 35(2) provides that a partner may opt to dissolve the partnership if any
partners charge his partnership property to pay his separate debt.

5) Dissolution by supervening illegality of partnership

Section 36 – a partnership is dissolved by the happening of any event which makes
it unlawful for the business of the firm to continue or for the other partners to carry it
on in partnership.

6) Dissolution by the Court

Section 37 – Upon application to the court by a partner, the court may decree
dissolution of the partnership in any of the following situation:-

(a) Insanity of a partner, where it can be shown that a partner is found to be a

lunatic or to be permanently of unsound mind. – S.37(a)

(b) Permanent incapacity of any partner, e.g. due to illness. – S.37(b)

(c) Conduct calculated to prejudicially affect the carrying on of the partnership

business by any partner. – S.37(c)

Carmichael v Evans
Both C & E were partners. C was convicted of travelling on a train without a
ticket and with intent to defraud. The court held that the conviction for
dishonesty was calculated to be detrimental to the partnership business.

(d) There is willful or persistent breach of the partnership agreement by any

partner such as conduct which makes it not reasonably practicable for the
other partners to carry on the partnership – S.37(d)
E.g. where there is constant friction amongst the partners which destroys the
mutual confidence that must exist in the partnership.

(e) Where the partnership business continues to make losses. The whole purpose
of partnership is to make profit. – S.37(e)

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(f) Where circumstances have arisen which the court finds it just and equitable to
dissolve the partnership – S.37(f)
E.g. where only 2 partners are left and the partnership have reach a deadlock
even though the firm continues to profit.

10.3.1 Notice of Dissolution

To avoid incurring liability after dissolution, Section 39 states that a partner may give
public notice of dissolution and can compel the other partners to sign the necessary
notices of dissolution. This also applies to the retirement of a partner.
Such notice can be advertised either in a local newspaper, gazette (an official
government publication) or by way of circular letter.

B. LIMITED LIABILITY PARTNERSHIP ACT 2012

10.4 INTRODUCTION
Limited Liability Partnership (LLP) is a new business vehicle regulated under the Limited
Liability Partnerships Act 2012. This is a hybrid business vehicle which combines
elements of conventional partnership and limited liability company privileges. LLP already
exists in many countries such as the United States, United Kingdom, Australia, India,
Singapore, Dubai, China and Japan and many more.

10.5 ESSENTIAL FEATURES OF LLP

Section 3 of LLP: Separate legal personality and capacity

(1) A limited liability partnership is a body corporate and shall have legal personality
separate from that of its partners.

(2) A limited liability partnership shall have perpetual succession.

(3) Any change in the partners of a limited liability partnership shall not affect the
existence, rights or liabilities of the limited liability partnership.

(4) A limited liability partnership shall have unlimited capacity and shall be capable of:
(a) suing and being sued;
(b) owning and disposing of its property; and
(c) doing and suffering such other acts and things as bodies corporate may
lawfully do and suffer.
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Section 23(1) - Every partner of a limited liability partnership is the agent of the limited
liability partnership.

Separate legal entity S.3(1) LLP enjoys the status of a body corporate which means
it has an independent existence, separate and distinct
from its partners.

Perpetual succession S.3(2) LLP will continue to exist despite changes in its
partners. Its existence, rights and liabilities will remain
unaffected even if the old partners exit.

Limited liability partnership
S.3(3)
Unlimited capacity S.3(4)
• The liability of its partners will be limited to each
partner’s contribution in the LLP.
• A partner will be personally accountable for his own
wrongful acts or omission arising from his own
negligence, malpractice or misconduct.
• As an entity of its own, LLP can be liable to the full
scale of its assets in repaying its debt.
LLP enjoys the same rights and obligations as any other
legal person where LLP can sue or be sued, hold a
property and do such thing as any other legal entity.

LLP partners are agents of • All partners of LLP are agents of the LLP
partnership • However, LLP partners will not be liable to other
S.23(1) individual acts of other partners.

10.6 FORMATION OF LLP

Section 6 provides that a limited liability partnership can be formed:

 By way of a minimum of 2 or more persons (individuals or bodies corporate); 
Who carrying on any lawful business with a view of making profit;  Based on
the terms of the LLP agreement.

Professional Practice
The LLP can be set up for a professional practice. Under Section 2, a professional
practice includes the following: a) chartered accountant
b) advocate and solicitor
c) company secretary

Section 8: Partnership for professional practice

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A limited liability partnership may be formed for the purpose of carrying on a professional
practice which partners shall-

(a) consist of natural persons (none of whom is a body corporate) who are practising
the same professional practice and no one else; and

(b) have in force a professional indemnity insurance.

10.7 RELATIONSHIP BETWEEN PARTNERS

Section 9 provides that the mutual rights and duties of the limited liability partnership and
its partners to be governed by the limited liability partnership agreement or in the absence
of such agreement, by the Second Schedule of the Act.

10.8 REGISTRATION OF LLP

Section 10 makes provision that a LLP can be registered by paying the prescribed fee
and furnishing the details below:
a) name of the proposed LLP.
b) general nature of the proposed business;
c) registered office
d) partners details
e) compliance officer details
f) approval letter (for professional practice)

The issuance of a notice of registration by the Registrar is conclusive proof that the LLP
has been duly registered.

Section 27 requires at least 1 compliance office is appointed among the LLP partners or
any other person having the necessary skills. Compliance officer roles are:
i. register any changes to the particulars of LLP
ii. keep the register and documents of LLP
iii. ensure LLP name is publish in accordance with the Act.

10.9 PARTNERS’ LIABILITY

Section 21: A partner of a limited liability partnership shall:

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i. not be personally liable, directly or indirectly, by way of indemnification, contribution,

assessment or otherwise, for obligations arising in contract, tort or otherwise –
S.21(1) & (2).

ii. not be personally liable for the wrongful act or omission of any other partner. But he
shall be personally liable in tort for his own wrongful act or omission – S.21(3).

iii. Where a partner of an LLP is liable to any person, other than another partner, as a
result of his own wrongful act or omission in the course of the business of the LLP
or with its authority, the LLP itself is liable to the same extent as the partner –
S.21(4).

iv. The liabilities of the limited liability partnership shall be borne out of the property of
the limited liability partnership – S.21(5)

10.10 WINDING-UP AND DISSOLUTION OF LLP

i. Receivership and winding-up by the court

Under Section 49, the provisions of winding up in the Companies Act 1965 and the
Companies (Winding-up) Rules 1972 shall apply to receivership and winding up of a
limited liability partnership.

ii. Voluntary Winding-Up of LLP

Section 50 governs the voluntary winding up of LLP where it is possible for a partner
to apply to the Registrar for a declaration of dissolution of LLP once it has stopped
operating and has cleared all its debts and liabilities.

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