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LAW OF PARTNERSHIP
 INTRODUCTION
Partnership exists - when two or more
individuals pools their skills, labour, capital
and other resources together to form a
business concern jointly.
Sources of partnership - The Malaysian
Partnership Act 1961

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 MEANING & NATURE OF
PARTNERSHIP
Definition - S. 3 Partnership Act
1961
‘ the relation which subsists between
persons carrying on a business in
common with a view of profit.’

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 If the word ‘partnership’ is not
mentioned:
 CASE: RATNA AMMAL & ANOR V. TAN
CHOW SOO[1964] 30 MLJ 399
 Malaysian Fed. Ct: There was a subsisting
partnership notwithstanding the omission of
the word ‘partnership’ in the agreement,
because the relationship between the
individuals had the business character of a
partnership within the scope of the Act.

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 Interpretation of S 3(1):
 i. Persons
There must be more than one person to
constitute a partnership.
Maximum number of partnership –
S 14(3)(a)&(b) Companies Act 1965:
 Professional partnership – there is no
limited number of members
 Ordinary partnership – not more than
twenty members

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 Effect of contravention to the legal provisions
– (partnership with a membership exceeding
20):-
 illegal
 no legal action can be maintained against
them:
 CASE: TAN TECK HEE V. CHENG TIEN
PENG (1915) 2 F.M.S.L.R
 Held: Such a formation was forbidden by the
law and therefore the parties were not
entitled to enforce any claim.

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 They cannot maintain any legal action:
 CASE: TAN CHIN CHEANG V ESTATE AND
TRUST AGENCIES (1962) LTD[1931]
FMSLR 129
 No action can be brought even if the
member exceeds twenty at the time of its
formation but it reduced later to less than
twenty either by death or resignation of
some.

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 ii. carrying on
A present transaction of a business activity.
 Whatever steps that have been taken, such
as instructions to solicitors to prepare a
deed and leasing of a business place for a
business to be undertaken in the future, will
not come within the definition of a
partnership.

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iii. business
S 2(1): ‘Business’- business activity which
covers every trade, occupation or profession.
To constitute a p/ship, the parties must
have agreed to carry on business, or
to share profits in some way
common.
Loan association is not considered as a
partnership under the Partnership Act
for the carrying on of business for gain.

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 iv. in common
 If one person carries on a business
and shares the profits of that
business with another, prima facie
these two are partners…’
 The mere fact that two parties who
carry on a business together with a
view of profit, will not necessarily make
them partners, unless they each
actually have a share of profits.

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 v. with a view of profit
Profit in this context means – net profit,
the balance left over after deducting
expenditure from income.
Social & recreational bodies – excluded
because they are not formed for the
purpose of making profits.

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 The characteristic revealed by the
definition:
 There must be more than one person
to constitute a partnership.
 An agreement between the persons,
express or implied, to have a business
in common.
 An agreement between the persons to
carry on the business for profit.

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  FORMATION OF P/SHIP
In an agreement to form a partnership
there must be:
 A consent and consideration.
 Parties must be competent to be a
partner.
 Can be created by a formal deed or a
written agreement & orally.
 The p/ship must also be for a lawful
purpose.

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 Examples of illegal p/ship:
 a p/ship to share in the profits of a
crime is illegal - a p/ship created for the
sale of smuggled goods was illegal in
the eyes of law.
 a p/ship formed for the purpose of
carrying on a business that is contrary
to public policy or one that cannot be
carried on without breach of any Act.

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TEST FOR DETERMINING
WHETHER A PARTNERSHIP EXISTS
1) Co-ownership of property
S4(a): joint tenancy, tenancy in
common, joint property or part
ownership – does not itself create a
partnership
2) Sharing Gross Returns
S4(b): sharing of gross returns – does
not itself create partnership
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 3) Sharing of Profits
S4(c) – person receives a share of the
profits of a business – prima facie
partnership exists.
However, can be rebutted in the
following situations:
 (i) Payment of a debt by installments
out of profit – does not make the
person a partner of the firm

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CASE: BADELEY V CONSOLIDATED BANK
B gave a loan to C to set up his business. C
offered a security to his loan. B agreed that
he must be reimbursed by 10% of the C’s
business profit.
Ct – held that B was not a partner, the loan
was secured and the fact that B received the
profits does not byt itself make him as a
partner to C.

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 (ii) Remuneration of a debt by
instalments out of profit
 (iii) Payment of annuity of a portion of
the profits to a widow or child of a
deceased partner in the business
 (iv) Payment of interest on a loan
advanced for use in business under a
written contract
 (v) Payment to the seller of the goodwill
of a business in the form of shares

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 TYPES OF PARTNER
A general partner – a partner in a
fullest sense.
An active partner - a partner who
actively participates in the management
of the business and is known to the
world as partner.

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A dormant (sleeping) partner - a
partner who takes no active part in the
management but is nevertheless liable
as a partner.
A quasi-partner – a person who, in fact,
is not a partner but who is liable for
debts of the p/ship as a consequence of
‘holding out’, i.e causing people to
believe he is a partner.

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RELATION BETWEEN PARTNERS & THIRD
PARTIES
General principle: An act or default
committed by one partner binds the rest of
the partners if – it is carried out within the
ordinary scope of the firm’s business.
S. 7 Partnership Act 1961, ‘Every
partner is an agent of the firm and his
other partners for the purpose of the
business of the p/ship.’

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 An act of a partner - binds the firm and
his partners.
H/ever such an act of a partner does
not bind the firm and his partners if:
 He has no authority to act in that
particular matter, and
 The person to whom he is dealing
either knows that he has no authority or
does not believe him to be a partner.

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RELATION OF PARTNERS INTER SE
T
Matters relating to the relation of
partners to one another are determined
by:
1) P/ship agreement; or
2)Articles of Partnership –
- a simple agreement signed by the
partners, or;
- oral agreement.
The agreement may provide for the
mutual rights and duties of partners.
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S. 21: The mutual rights and duties of
partners whether contained in an
agreement or defined by the Act may
be varied by express or implied consent
of all partners.
The relationship of partners must, as in
law, be based on mutual trust and
confidence.

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 UTMOST GOOD FAITH
Each partner must demonstrate utmost good
faith in all his dealings towards the other
partner.
S 30 – Render true accounts and full
information on all things affecting the p/ship
or his legal representatives.
S 31 – Account to the firm for any secret
profit or any benefit derived by him.
S 32 – Not to compete with the firm in
business of the same nature without consent
of the other partners, otherwise, must
account for any over to the firm all profits
made by him in that business.
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 RIGHTS & DUTIES OF PARTNERS (S. 26)
(i.e. in the absence of agreements).
1. All partners are entitled to share equally in
the capital & profits of the business and must
contribute equally to losses whether of capital
or o/wise.
2. The firm must indemnify every partner in
respect of payments made & personal
liabilities incurred by him:
 a) in the ordinary & proper conduct of the
business of the firm; or

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 b. in or about anything necessarily done
for the preservation of the business or
property of the firm
 CASE: KOK HONG LEONG V SEOH
KAH CHENG
 A legal action was brought against a
firm. One of the partners had
successfully defended the case against
his firm.
 Ct held – The firm was liable to pay the
cost incurred by the partner in order to
win the case.
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3. A partner making, for the purpose of
the parthership, any actual payment or
advanced beyond the amount of capital
which he has agreed to subscribed, is
entitled to interest at the rate of 8%
per annum from the date of payment of
the advance.
4. No partner is entitled to interest on
capital b4 the ascertainment of profits.

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5. Each partner may take part in the
management of the business.
6. No person may be introduced as a
partner w/out the consent of all existing
partners.
7. No partner is entitled to
remuneration for acting in the p/ship
business.

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8. Any differences arising as to ordinary
matters connected with the partnership
business may be decided by a majority
of the partnership, but no change may
be made in nature of the p/ship
business without consent of all existing
members.

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9. The partnership books are to be kept
at the place of business of the
partnership place, if there is more than
one place of business, and every
partner may, when they think fit, have
access to and inspect and copy a/of
them.
A partner may employ an accountant or
another agent to examine the books

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 I
 LIABILITY OF PARTNERS
 Contractual liability
S. 11: “Every partner in a firm is liable jointly
with the other partners for all debts and
obligations of the firm incurred while he is a
partner”
All partners in a firm are jointly liable for all
contractual and other debts and liabilities
which are incurred while each is a partner.
Does not confine to contractual matter as it
is wide to cover other liabilities such as tax &
judgment debt.

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 Liability in Torts
S. 12: Where by a/wrongful act or
omission of a/partner acting in the
ordinary course of the business of the
firm with the authority of his co-
partners, loss or injury is caused to
a/person not being a partner in the
firm, or a/penalty is incurred, the firm is
liable thereafter to the same extent as
the partner so acting or omitting to act.

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 The tortious act must be committed by a
partner either in the ordinary course of the
business or with the authority of his co-
partners.
Eg:
 A partner in an architectural firm is liable for
the negligence of his partner in the design of
a building project outside specifications laid
down by his clients
 A quantity surveyor is equally liable as a
partner of a form when another partners
makes a miscalculation as to the costing of a
particular project.

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 CASE: BLYTH V. FLADYATE [1891]
1 Ch.337
 Held: A firm of solicitors would be
liable for the negligence of one of the
partners.
 Criminal liability
Although partners are jointly liable in
civil cases, they are not jointly liable in
criminal cases.

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 Liability of death partner
S. 16(2):When a partner dies and the
p/ship business is continued in the old
firm name, the continued use of that
name or of the deceased’s partner as
part of it, does not itself make his
estate liable for a/ partnership debts
contracted after his death

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 Liability of incoming partners
S. 19(1): When a person is admitted
as a partner into an existing firm he
immediately assumes the liability of a
partner (to the creditors) but he will not
be liable for a/thing done b4 he became
a partner
Nevertheless, he may be liable for past
debts if they agree to be liable.

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 Liability of retiring partners
A retiring partner is still liable for p/ship debts
or obligations incurred whilst he was a
partner.
S. 19(2): A partner who retires from a firm
does not cease to be liable for partnership
debts or obligations incurred before
retirement.

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CASE: COURT V BERLIN
A solicitor engaged by a firm comprising
three partners. Two of the partners
retired.
Ct held: The solicitor was entitled to
recover his costs from all three of the
partners, notwithstanding the
retirement of two of them.

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 ,
S. 19(3): A retiring partner may be
discharged from such existing liabilities

by way of an express or implied

agreement between himself and the
partners of the newly constituted firm
and the creditors,
A partner of a p/ship may retire as such
by giving notice to all the other
partners-such notice may be oral
/written.
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  DISSOLUTION OF PARTNERSHIP
Part V of the P/ship Act deals with the
dissolution of p/ship & its consequences.
A p/ship may be terminated or dissolved in
several ways.
1. By agreement
The p/ship articles may fix the duration of
p/ship & the p/ship is terminated on the
expiry of the period
The partners may mutually agree to dissolve
the p/ship at a/time

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 2. By operation of law - expiration
S. 34(1)(a): if the p/ship is entered
into for a fixed term, s. 34(1)(b) for a
single adventure/undertaking, the
p/ship is dissolved on the expiration of
the expiration of the fixed term or
termination of the adventure

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 Notice: s. 34(1) (c ) if the p/ship is
entered into for an undefined time,
a/partner may determine the p/ship at
a/time by notice to the other partners.
 3. Death or bankruptcy
S. 35(1) - p/ship is dissolved as regards
all partners by the death or bankruptcy
of a/partner (subject to a/agreement
that may have provided otherwise

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 4. By court order
S. 37: A p/ship may be dissolved by a court
order on the application by a partner
The power of the court to order a dissolution
of a p/ship is entirely discretionary
On the application by a partner, the court
may order a dissolution in any of the
following cases
 i. s. 37(a ) insanity of a partner & s. 37(b)
permanent incapacity

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 ii. willful or persistent breach of p/ship
agreement by a/partner other than
applicant (s. 37(d) )
 iii. when the business of the p/ship can
only be carried on at loss. (s. 37(e) )
 iv. Whenever in a/case, circumstances
have arisen which, in the opinion of the
court, it is just and equitable to dissolve
the p/ship (s. 37(f) )

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