LAW OF PARTNERSHIP PREPARED BY: MADAM NORAZLA ABDUL WAHAB
PARTNERSHIP • The relevant statue applicable- Partnership Act 1961
Definition • Section 3(1) Partnership Act 1961 Partnership is the relation which subsist between persons carrying on business in common with a view of profit. • Partnership must be registered under the Registration Business Act 1956. • However, Failure to register does not mean the partners cannot enforce their rights for each other.
Gulazam v Noorzaman and Sobath  23 MLJ 45 Facts: An agreement between the Plaintiff and Defendants where the Plaintiff would provide capital for the purchase of cattle and the defendants would look after the cattle and then sell them in order to gain profits to be distribute equally amongst them. When the defendants failed to pay the plaintiff an action was brought against them.
Continue…. The Defendant argued that the business had never been registered under any Acts, hence making it not a partnership at all. Held: The plaintiff could claim because the relationship between the individuals had the business character of a partnership within the scope.
1. More than one person • Must have more than one person. Partnership means…….two or more can become a partner in a partnership…..if one person it will be sole proprietorship…..
Section 47(2) of PA 1961 (Revised 1974), the maximum number of partners allowed in a partnership is twenty (20). • But, Section 14(3)(a) Companies Act 1965, a professional partnership can have unlimited numbers of partners. • i.e: lawyers- legal firms- LPA
Continue….. • Tan Teck Hee v Chong Tian Peng Held: The action against Defendant fail because the numbers of partners in the firm concerned was 25. Since the firm was void, any legal action taken could not be allowed.
Shim Fatt v Leyland Road Bus Co. The Plaintiff gave advance on money to the defendant, a firm consisted of more than 20 partners. The Court held: Plaintiff could not recover the money because a legal action could not be brought against a void firm,
2. Agreement between the partners • “relationship” : an agreement or a contract between the parties or a contract between the parties to the partnership either expressly or impliedly. • Although the word partnership does not appear in a agreement, a partnership may still exist if the relationship between the individuals has the business character of a partnership.
RatnalAmmal@anor v Tan Chow Soo  30 MLJ 399 Facts: The parties enter the agreement to form a ‘syndicate” for the purpose of selling condensed milk. The word “partnership” was not used in the agreement. Instead, the word ‘syndicate was used. Held: The relation of the parties had the business character of a partnership and although the word partnership was missing in the agreement, it was still a partnership.
3. Present transaction of business activities • The parties must be carrying a partnership business at the “present”. • Business refers to any trade, occupation or profession. (s. 2) • Hence, there will be no partnership if the parties are preparing a business for the future.
4. Each partner is an agent to one another • Partners in a partnership is an agent to one another. • It means that the act of one partner are also reflects of the act of the other partners, provided the act is in the course of the business of the partnership.
Continue…. • Section 7 Every partner is an agent of the firm and his other partners for the purpose of the business of the partnership…. Acts of the other partners binds the other partner and the firms….
UNLESS; The partner acting without authority…. and the person with whom he is dealing either knows that he has no authority or does not know or believe him to be a partner….
5. For the Purpose to Profit • It is essential for the business to be carried on in a common with a view of profits. • Profits mean net profit. • Charitable or religious organization, clubs, societies & co-operative are NOT PARTNERSHIP. • Impliedly that the profit to be shared equally
Mollwo, March & Co. v The Court of Wards • Held: To constitute a partnership, the parties must have agreed to carry on business or to share profits in some way in common.
CARRIED ON COMMON ? • Must carried on or by or on behalf of all partner. • Must be one person or more carry on the business for himself and on behalf of the others. • However, it NOT NECESSARY- all partners must play an active part in business (sleeping partner).
Circumstances – NOT partnership • S. 4 (a), (b) & (c) of PA 1961 • Examples: • Joint tenancy, tenancy in common, joint property • Sharing of gross return
Types of Partners • General partners He is a partner in the fullest sense • Active partners A partner who is actively participates in the management of the business and is known to the world as the partner • Dormant/sleeping partner No active part in the management but still liable as partner.
Quasi- Partner • Not a partner but liable for debts of the partnership as a consequences of holding out (causing other people to believe that he is a partner). • S. 16- person who has retired from a partnership must ENSURE that no other representation made by words or conduct of himself or any other partner to the effect that he is still a partner of the firm.
Salaried partner • A partner who receives a fixed remuneration irrespective of profits or who received a fixed salary every months plus a small percentage of the profits.
Formation of Partnership • Formality Can be formed with or without written agreement • Capacity Any one of sound mind can be a partner. A minor partner cannot be held liable and responsible for any contracts made
Continue…. • Documents Partnership Agreement Or Articles of partnership which provides for all rights and duties of a partner • Duration Depends on the intention of the partners whether to fix the duration of the partnership or otherwise
S. 28 (1) : • no condition as partnership duration: may dissolve by giving notice. • Section 29(1): • if the duration of partnership has expired but all partners wishes to proceed with the partnership without having to make a new agreement, the rights and duties of the partners are still the same.
RELATIONS OF PARTNERS TO OUTSIDERS Power of Partners to Bind Firm Implied Authority Liability of Partners Liability of Persons for Holding Out
Power of Partners to Bind Firm • S. 7 Every partner is an agent of the firms and his partners for business. • Binds the firms & his partners • But, the partners NOT LIABLE – if the partner act without authority
Implied Authority • A partner should has authority to do acts as what had usually done by partners in a particular kind of business. • Examples: • Sleeping partner-bounds by the contract made by active partners.
Implied Authority • Every partner has implied authority to BIND the firm. • Depend on the circumstances, nature of business & practice of the person engaged . • Examples: • A partner sells the firm’s goods & chattels (Dore v Wilkinson (18177)) • Purchasing on the firm’s behalf goods (Bond v Gibson (1800) 1 Camp 185)
Implied Authority • However, • The partner will be PERSONALLY LIABLE for his unauthorized act UNLESS Be ratified
Liability of Partners • S.11 • Every partner in a firm is LIABLE JOINTLY with the other partners for all debts & obligations of the firm incurred while he is a partner .
Liability of Partners Example: Mamat supplied stationeries worth RM 5K to the firm of Didi, Dada & Dudu Trading. However, he has not been paid for that and start to sue the firm. If there is insufficient common partnership property to satisfy the debt, he can levy execution against private property of the Didi, Dada & Dudu or anyone of them. If Mamat fails to recover the debt from Dada ( i.e.) he cannot later sue the other partner.
Liability of Partners • Tortius acts & wrongs (S. 12 &14) • The partner are JOINTLY & SEVERABLY LIABLE for such wrongs committed by one of the partners in the ordinary course of business of the firm with the authority of his co-partners.
Liability of Partners Example: • The partner done illegitimate – ALL partners are LIABLE. • Partner that entrusted with the trust property- OTHER PARTIES are NOT LIABLE except the person that personally beneficially interested it.
Liability of Person for “HOLDING OUT” Example: • He is NOT a partner of the firm BUT he by words spoken or written represent himself or allow himself to be represented as a partner in a firm. LIABLE as partner BUT his liability only to those who have given credit to that firm based on a faith of that representation.
Liability of Person for “HOLDING OUT” Bevan v The National Bank Limited (1906) 23 TLR 65 B carried on business as MW & Co. and employed MW as a manager of the business. The court held: Holding out
Liability of Person for “HOLDING OUT” HOWEVER, When a partner dies and the partnership business is continued in the old firm name, the continued use of that name DOES NOT make his estate LIABLE for any partnership debts after his death. (S. 16 (2))
INCOMING & RETIRING PARTNERS Incoming Partners Retiring Partners
INCOMING PARTNER • S.19(1) • Person that admitted as a partner into an existing firm will NOT be LIABLE for anything done BEFORE he became a partner.
RETIRING PARTNER • S.19(2) • A partner retires , he REMAIN LIABLE for the partnership debts incurred BEFORE his retirement. • S. 38 (1) • …He IS still LIABLE UNLESS he has given an express NOTICE that HE IS NO LONGER A PARTNER to the person he is dealing with
PARTNERSHIP PROPERTY • It must be used EXCLUSIVELY for the purpose of the firm. • Purchased with partnership money. • It must be stated in the agreement OTHERWISE It is separate property of partner although it may be used for or even important to the partnership business. (see case Ponnukon v Jebaratnam  1 MLJ 283)
PARTNERSHIP PROPERTY Ponnukon v Jebaratnam  1 MLJ 283 Court held : The land was not paid with the funds of the partnership but the fund that raised by the J himself which is independently of P and the partnership as well.
PARTNERSHIP PROPERTY • S. 25 (1) A creditor who obtained judgment against the firm may SEIZE the partnership property in execution of the judgment. • HOWEVER, • S. 25(2) A creditor who obtained judgment against AN INDIVIDUAL PARTNER, CANNOT seize all the partnership property but only on the partner’s interest in the partnership property including profits etc.
RELATION OF PARTNERS TO ONE ANOTHER Via agreement Mutual rights & duties of the partners i.e. conduct & management of the business, the capital to be provided by each partner, the proportion of profits, rights & duties of the partners.
RELATION OF PARTNERS TO ONE ANOTHER Via agreement If No specific provisions- rules in PA will apply. However, may be varied by the consent of all the partners.
RELATION OF PARTNERS TO ONE ANOTHER S. 26 All the partners SHARE the capital, profit & loss EQUALLY. The firm must indemnify every partner in payment made & personal liabilities incurred by him. Entitled for the interest of 8% per annum for the advanced made.
RELATION OF PARTNERS TO ONE ANOTHER S. 26 No partner entitled for the interest of the capital before the ascertained of profits. Every partner may take part in the management of the business. No partner is entitled to remuneration.
RELATION OF PARTNERS TO ONE ANOTHER S. 26 No person be introduced as partner without consent of the other partners. Any differences may be decided by majority but subject to the consent of all existing partners. The partnership books/account must be kept at the place of business.
RELATION OF PARTNERS TO ONE ANOTHER Above all Principle of “UTMOST GOOD FAITH” between the partners is implicit in every partnership agreement. (see case Vasu Devan& Ors v V.V.Nair (1985)1 MLJ 137)