Lecture 2

PARTNERSHIP
 Learning Outcomes
At the end of this lecture, students should
able to:

• Discuss the formation of a partnership.

• Explain liabilities of a partner inter se
and against third parties.
• Describe types of partner.
• Discuss ways of termination for a
partnership.
 Topic Outline

Not
Definition Elements
partnership

Partners and Partners Types of

3rd parties inter se partner

Capacity Illegality Dissolution

 Introduction

Success

Trust

Understanding
 Definition
Section 3(1)

• The RELATION which subsists between

PERSONS carrying on business IN COMMON
with a view of PROFIT.

Section 3(2)

• Clubs, societies, building association is NOT

partnership.
 Elements

More than Business in

one common

Business
for profit
 Nature

Legal status • NOT a separate legal entity.

• 2-20 partners EXCEPT for

Number professional partnership.

Management • Partners responsibility.

 Alagappa Chettiar v Coliseum
Café
• The Coliseum Café and Hotel
is NOT A LEGAL PERSONA.
• When an action is brought
against the firm name, it is in
fact AN ACTION AGAINST
ALL THE PARTNERS.
 Rules for Determining the Existence of a
Partnership

Section 4
Circumstances not prima facie a
partnership

Sec. 4(a) Sec. 4(b)

Sec. 4(c)
Joint Sharing of gross
Sharing of profits
ownership/tenancy returns
Section 4 (a) – Joint Ownership/Tenancy

• Joint ownership of the

property whereby a person
GET PROFIT FROM THE
USE OF PROPERTY does
not necessarily means
that there is partnership.

Davis v Davis
Sec. 4(b) – Sharing of Gross Returns

Gross
returns Profit

Cox v Coulson
Sec. 4(c) – Sharing of Profit

General • Prima facie

rule a partner

• Sec. 4(c)(i)
Exceptions to (v)
 Sec. 4(c)(i)
Payment of debt by • Badely v Consolidated Bank.
installment

Sec. 4(c)(ii) • Chua Ka Seng v Boonchai

Remuneration Sompolpong.

Sec. 4(c)(iii)
• IRC v Lebus's Trustee.
Annuity

Sec. 4(c)(iv)
Payment of loan or • Re Young ex parte Jones.
interest out of loan

Sec. 4(c)(v)
• Pratt v Strick.
Sale of goodwill
Relationship of Partners and 3rd Parties

Sec. 7 – All acts done by a partner bind

another

Conditions

Purpose of the Firm’s ordinary Done by the

business of the course of partner as a
partnership business partner
Purpose of the partnership

• Chan Kin Yue v Lee & Wong

In the firm ordinary course of business

• Merchantile Credit v Garrod

Done by the partner as a partner

• Re Briggs & Co Ex parte Wright

 Liability of Partners

Contractual – sec. 11.

Tortious – sec. 12.

Criminal – not jointly liable.

Holding out – not authorised.

 Incoming
partner – sec.
19(1).

Retiring
partner – sec.
19(2) and (3).
 Types of Partner

Active Dormant

Quasi Salaried
Capacity of Partner

Minor

Sound
mind
 Illegal Partnership

Illegal
purposes Exceed number
of partners
Effect of Illegality

No rights

3 party
rd

can sue
 Dissolution.

Court’s intervention. Without Court’s intervention.

Section 34. Section 35. Section 36.

Fixed Single Notice. Death. Bankrupt. Charge. Illegality.

term. adventure.

Section 37.

Lunatic. Permanently Guilty. Breach of Loss. Just and

incapable. partnership. equitable.
 Summary
• The advantage of setting up a business in
partnership is the higher volume of capital
than sole trader.

• Less procedure is required to set up a

partnership firm than company.