BBUN2103

Business Law
Nazruzila Razniza
 Topic 11: Partnership
• Learning outcomes:
– Explain the meaning of partnership
– Discuss the characteristics of business entities
which are formed through partnership
– Assess the rights and liabilities of partners and
their relations to each other and to a 3rd party.

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 Relevant Act
• Partnership Act 1961

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 What is a partnership?
• S. 3 (1) – the relation which subsists between
persons carrying on business in common with a
view of profit.
– Relations between several individuals
– Express or implied agreement to carry on a common
business
– Agreement between parties with a view of profits
• Cooperative society and companies are excluded
from the definition of partnership (s. 3 (2))

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 11.1.1 Relations between several individuals

• The relations which exist between partners must

be a relation to carry on a business of partnership.
– Case: Keith Spicer Ltd v Mansell (1970)
• No stipulation of max numbers provided by the ACT
– But it is specified by s. 13 of the Companies Act 2016
• Ordinary partnership max – 20
• Professional partnership – more than 20
• Cases: Tan Teck Hee v Cheng Tian Peng (1915) & Shim Fatt v
Leila Road Bus Co (1957)
• Min - 2

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 11.1.2 Express or implied agreement to carry on a
common business

• Common business – every trade, occupation

or profession (s. 2)
• Mollowo, March & Co v Court of Wards (1872)
– to constitute a partnership, the partners must
have agreed to carry on a business or to share
profits in some common way.

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• Nature of common business:
– Carried on (not merely plan to carry on)
persistently or repeatedly;
• Smith v Anderson (1880) – an undertaking done only
once even if it brought some profits does not meet the
meaning carried on business in common
– Not merely charitable activity

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 11.1.3 Agreement between parties with a view of
profits

• Intention to gain profits is necessary

• Case: Soh Hood Beng v – Khoo Chye Neo
(1897) – where a moneylending association
formed by several persons for the purposes of
giving out loans to its members from the
moneys collected from its members was held
as not a business to form a partnership since
it is charitable in nature

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 11.2 Factors which determine the existence of a
partnership

Partnership/NO?

Sharing of net profits

Joint title to a tenancy – Gross profits – NOT automatically partnership (s 4
NOT automatically
partnership (s. 4 (a))
(b))
Net profits (s. 4 (c) - presumption is YES
EXCEPTIONS
Remuner
Payment of ation of Payment
debt of annuity
instalments a servant to widow
Lender gets
interest paid
or or child of with the Seller of
mercantil deceased partnership goodwill
e agent partner profits
of
business

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 Exception s. 4 (c) (ii) – payment of servant or
agent
• Case: Walker v Hirsch (1884) 27 Ch. D 460
• P lent money to H & Co which was controlled and
owned by 2 persons. P signed an agreement with H
& Co which provided that P would be paid a salary
and 1/8 of the profits and losses and the agreement
could be determined with 4 months’ notice. P. who
was a clerk continued as such in H & Co after the
agreement.
• Held: P was merely a servant and was not a partner.

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 11.3 Formation of a partnership
• Can be formed through mutual agreement made between the
parties orally or writing.
• The agreement may stipulate several matters such as the
duration of the partnership, the rights and liabilities of partners,
capital subscription, distribution of profits and losses etc.
• Not stipulating in partnership contract – apply Part IV and V of
the PA 1961
• Registration in compliance with the Companies Commission of
Malaysia Act 2001
• Registration is definite proof of partners but may be rebutted
with relevant proof

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 11. 5 Partners and 3rd party
• Based on the agency relationship
– Partner is agent to:
• Firm and
• Other partners

• Provided he or she is given authority (apparent and

actual)

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 Apparent authority
• All authority which a partner does not
actually or expressly have but his actions will
still bind the firm and his other partners (s. 7)
• UNLESS:
– Partner acted without authority & persons who
deal with him knew that he had not such
authority;
– Did not know or believe that he acted as partner
• Means partnership/other partners NOT liable

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 Believes that A has the
authority since he is
the partner
A as a partner is
ALLOWED to
borrow RM30K –
max amount Moneylendin
(express authority) g firm

Partnership
A

Borrow RM45K
Law:
Partnership cannot deny liability
because of A’s apparent authority
 s. 7 - conditions
• The act must be of the nature usually carried on by
the firm
• The act done is the usual way the act carried on by
the partner or within the ordinary course of
business of the firm
• The 3rd party dealing with the partner knew or
believed the person who dealt with him is a partner
• The 3rd party who has a dealing with the partner
does not know that the partner has no authority

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 Actual authority
• Partnership and other partners will be made
liable if give actual authority to act to one of
the partner even though the nature of
business is out of the common business
carrying on by partnership.
• See example

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 Believes that A has the
authority since he is
We are the partner
manufacturer of
batik fabrics and
export them out
but A you may Foreign
deal with export of customers
fruits

Partnership
A

Law: Export to foreign

Partnership cannot deny liability not customers
because of A’s apparent authority
(nature of business is batik) but because
of actual authority given to A
 6. Liabilities of partners
• S. 16 – made liable persons by words spoken
or written or by conduct consented his name
is stated as a partner even if he has retired by
has not asked to erase his name

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 Liabilities of incoming and outgoing partners

• See table 9.1. page 191 & 192

• 4 principles

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 11. 7 Relations of partners to each other

• May exist by 2 ways:

– Mutual agreement (s. 21)
– Application of provisions in the Act

• Any rules, whether specified by an agreement

or provisions of the Act may be varied if all the
partners consented to the variations. It is not
sufficient if it is made by a majority consensus.

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 Statutory provisions relating to relationship
between partners
• In the absence of any agreement between the
partners which stipulate on the rights and
liabilities, reference must be made to the PA
1961. The Act provides several provisions
which may be applied to settle any arising
disputes in respect of relations of partners to
each other.

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 Statutory provisions relating to relationship
between partners (s. 26 of the PA 1961)

• Equally share capital and profits and equally responsible for losses
• Firm must indemnify every partner in respect of payment made and
personal liabilities incurred by him
• Right for interest if payment is beyond the capital
• Right of interest is only recognised after the ascertainment of profits
• Take part in the management
• No remuneration for acting in the partnership business
• No new partner can be introduced without the consent of all partners
• Power of majority to make changes to the partnership (management
issues) except when it involves changes of nature of partnership (selling
business) business (require consent of all partners)

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 Duties of partners
• S. 30 – to render true accounts and full information
on all things affecting the partnership to the other
partners or agent.
• s. 31 – to account to the firm for any personal
benefit he derived without the consent of the other
partner from transactions in connection with the
partnership.
• S. 32 – to account of pay over to firm all profits
made by him if such transactions is not of the same
nature or competing business with that of the firm.
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 8. Dissolution of partnership
• Automatic as stipulated by the Act unless the
parties have avoided the implication of the same
Act
• Notice – notification to all partners (s. 34 (1)(c))
• Court – unsound, permanently incapable, guilty
of conduct prejudice to nature of partnership
business, breach of agreement, partnership
suffers persistent loss, any other reasons the
court think reasonable
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