FORMATION OF

PARTNERSHIP
THE PARTNERSHIP AGREEMENT
• Parties to the Agreement
• Nature of Business and Place of Business
• Firm Name
• Duration of Partnership
• Provision of Capital
• Division of Capital and Profits
• Partnership Property
• Management of the Business
• Methods of Dissolving a Partnership
• Change on the Firm
• Expulsion of Members 
• Restriction on Competing 
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 PARTIES TO THE AGREEMENT

• It is important to clearly spell out who are the

parties regarded as partners to establish their
right and liabilities (s. 26), although there are
circumstances where a person who has not
been named as one could be made liable as if
he was a partner.

Partnership agreement will

always prevail over
partnership act

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 NATURE OF BUSINESS AND PLACE OF
BUSINESS
The nature of the partnership business should
be stated because it is only that particular
business which the partners agree to carry on.
It is with regard to this business only where
each partner is regarded as an agent of the firm
and can bind the other partners. The usual
place of business should also be clearly stated,
and according to S. 26(i) it is where the
partnership books should be kept.

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 FIRM NAME
• S.6 provides:
‘Person who has entered into partnership with one another is, for the
purpose of this Act, called collectively a firm, and the name under which
their business is carried is called firm-name.’
• Partners have a choice of trading either under a combination of their own
names or any trade name.
• If a trade name is chosen, then a registration fee of RM50.00 will have to be
paid under the Registration of Businesses Act, 1956.
• Although the partners are collectively called a firm, it is important to note that
the law does not consider the firm a legal personality of its own like other
incorporated bodies or associations. The firm is not a separate personality
from the individual members of the partnership as was appointed out in
Alagappa Chettiar v Coliseum Café [1962] MLJ 111 where the Court of
Appeal said that as partnership is not a separate legal entity it cannot hold a
tenancy.
• However the firm-name can be used in official correspondence, legal
documents and the court rules allow the firm-name to be used in any legal
actions.
• In firm the one who will be liable is the partner in the firm itself

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 DURATION OF PARTNERSHIP

A partnership established without a fixed term is under

S.28(1) considered as a partnership at will. The
disadvantages of a partnership at will are that any partner
may determine the partnership at any time on giving
notice of his intention to do so to all the other partners.
This uncertainty could be avoided by agreeing upon a
fixed term. Clearly stating the date on which the
partnership is to commence and for its duration. The
partnership may, however, to be continued after the
expiration of the agreed term.

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 PROVISION OF CAPITAL

The amount of partnership capital should be clearly stated

according to its financial value, and this includes the
proportion that each partner contributes to the capital,
whether in cash or kind. Where the partners have agreed to
contribute equally to the capital, but at the beginning one of
the partners has to contribute more to make up for another
partner’s inability to come up with the agreed amount, that
advance is to be regarded as a loan to the partnership, for
which he is entitled to be paid interest. S. 26(c)
-if one of the partner not able to pay yet so the other
partner can give loan in advance .

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 DIVISION OF CAPITAL AND PROFITS
• It is important to agree to the division of
capital and profits between the partners,
especially on or after dissolution, because
without any contrary agreement, S. 26(a)
allows for an equal share to capital and profits
to all the partners irrespective of their
contribution.

-mean org yg bagi

lebih will get more,
if give sikit then get
sikit lah
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 PARTNERSHIP PROPERTY

To avoid problems which normally occur in

many partnerships on the question of
ownership of property, it is in the best interest
of all parties to clearly establish rules to
identify which of the assets are to be regarded
as partnership property. See ss. 22, 23 & 24.

Cth: beli printer for the office bnyk2, beli dgn

duit sendiri kononnya utk kegunaan
partnership then itu partnership property as
long as ade hitam putih
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 MANAGEMENT OF THE BUSINESS
• To ensure that only those with the relevant
skills and experience manage the partnership
business, there must be a provision for it in the
articles of partnership. If there is no written
provision, every partner may take part in the
management of the partnership business since
it is allowed by S.26(e). To lessen the problem
in the management of the business, it is also
useful to set out clearly the limit of each
partner’s powers, especially in entering into
contract, or giving credit.

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 METHODS OF DISSOLVING A PARTNERSHIP
• It is desirable to provide for methods of dissolving a
partnership, as the absence of such a provision would
mean that the partnership is subjected to the provision
of Part V of the Partnership Act 1961. According to
S.35(1), the death or bankruptcy of any partner will
cause a partnership to be dissolved. As this provision
may have an adverse effect on active and successful
business, it is thus advisable to provide for the
continuation of the firm by the other partners, in the
event of death or bankruptcy.
-make it clear how the method should be in partnership agreement

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 CHANGE IN THE FIRM
As the agreements of all partners are required for the
introduction of a new member according to S.26(g), it is
necessary to make provision for a retiring partner, or the
agent of a deceased partner to appoint another as a new
partner without this unanimous decision.

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 EXPULSION OF MEMBERS

If there is no provision to the contrary, S.27 provides that a

partner may not be expelled from the partnership, even if a
majority wants him to leave. To avoid the effect of this
provision, it is necessary to expressly state the power of
expulsion, not only by the majority, but also on other grounds.
-sometimes we will have partner who is not perform, according to
sec 27 we cannot expel that partner just like that… that is why
we need to specify in the agreement method of how we can
expel a partner.

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 RESTRICTION ON COMPETING
• According to S.32, a partner may not enter into any
business that competes with that other firm. To enable a
partner to involve himself in business that may compete
with that other firm, provision must then be made for
that. As there is nothing to prevent a retired partner
from entering into competing business, it may be
advisable to make certain conditions relating to that.
However, such restriction is subjected to the same rules
as to restraint of trade.
• When being a partner and gain certain skill and because of that we have our own
client/customers. So decided to open new firm that is similar to the previous firm,
however this is not allowed in section 32. kalau nak membenarkan kene specify in
the partnership agreement.

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 ADVANTAGES OF A WRITTEN
AGREEMENT
Where there is no written agreement to the contrary, the
provisions contained in Part IV and V of the Partnership Act is
applicable to a partnership. Some of the rules are not suitable
for a partnership; e.g.
• The existence of a partnership at will – where any of the
partners can give notice to dissolve a partnership, even if its
business is thriving.
•The dissolution of a partnership upon the death or the
bankruptcy of a partner unless it had been agreed between the
partners, the death or bankruptcy of any of the partners will
bring the partnership to an end, even where the partnership is
actively carrying on a successful business.
•Rights and liabilities over partnership property – may create a
problem where partners do not contribute to the shares equally.

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Several terms used in the Act can only be
interpreted by looking at the intentions
between the partners or the way the
partnership business is run. The intention
of the partners or the way the business is
run can only be construed if there is a
written agreement to refer to. If there is
no written agreement, it will make it
difficult to reveal what the parties had
actually agreed upon.
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 CAPACITY
• Generally any one can enter into a partnership.
• However, as a partnership is subjected to the general principles of ordinary
contract, a person who becomes a partner should have the capacity to
contract -S.11 of the Contracts Act, 1950.
• A minor is not prevented from entering into a partnership. This means that there
can be a partnership between a minor and an adult. The principle that a minor
could be in a partnership for any duration of time until he wants to get out of it
was established in Goodie v Harrison (1821) 5 B & Ald, 157. On reaching the
age of majority, a minor can, if he wishes, discharge himself from all future
debts of the firm by terminating the partnership. If he fails to repudiate the
agreement, he will be liable for the partnership debts.
• A partnership with a minor is risky for the other adult partners, as minors cannot
incur or be responsible for any contractual liability for the firm’s debts. They can
only be made liable for debts which are legally enforceable against them, which
would be for their necessaries.
William Jacks & Co. (Malaya) Ltd. V Chan and Yong Trading Co. [1964]
30 MLJ 105;

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 REGISTRATION
• When a firm is established, it is required to be registered
under the Registration of Businesses Act 1956. However,
a firm is not affected by its failure to register. It would still
be valid as a firm.
Sivagami Achi v P.R.M Ramanathan Chettiar & Ors
[1959] 25 MLJ;
• The registration of a person’s name as partner is prima facie
evidence that he is a partner. This however does not prevent
the other partners from proving that he is really not a
partner.
Gulazam v Noorzaman & Sobath [1957] 23 MLJ 45
• The failure to register a business which was supposed to be
partnership was held by the court as not affecting the right
of a partner to legal action against the other partners.

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THANK YOU

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