LAW OF PARTNERSHIP

LECTURE 8

Charles Nicholson
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 DEFINITION

• The law of partnership is governed by the Partnership

Act 1961 (Act 135)

• S. 3(1) of the Act defines a partnership as:

‘the relation which subsists between persons carrying on
business in common with a view of profit’.

• S. 3(2) excludes from the definition registered

companies, statutory companies, co-operatives, clubs
societies and charitable organisations.
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• There must be more than one person to constitute a
partnership.
• The number of partners cannot exceed 20 - s. 47(2) PA
1961 and s. 14(3)(b) Companies Act 1965.
• Professional partnership firms are not subject to the limit
of 20 members. e.g. legal firms.
• A ‘business’ includes every trade, occupation or
profession – s. 2 PA 1961.
• 3 elements necessary for existence of a partnership:
1. The carrying on of a business.
2. The business must be carried on in common.
3. The business must be carried on with a view to
profit.

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 REGISTRATION OF THE FIRM
• The partnership business must be registered under the
relevant law depending on its location.
• Sole proprietorships and partnerships are registered with
the Companies Commission of Malaysia - Suruhanjaya
Syarikat Malaysia (SSM)) - under the Registration of
Businesses Act 1956.
• The CCM (a statutory body) established in April 2002
pursuant to the Companies Commission of Malaysia Act
2001 administers and enforces the Co. Act 1965 and
ROB Act 1956 and takes over the functions and
responsibilities of the Registrar of Companies and
Registrar of Businesses.
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• Particulars to be submitted to the Registrar for
registration of the partnership will include:-
 commencement, carrying on & termination of business
 name of the business
 general nature of the business
 name and race of the associates
s. 5(1) Registration of Businesses Act 1956

• A creditor is entitled to rely on the particulars kept in the

CCM to ascertain whether a person has remained a
partner of the firm at the commencement of an action
s. 6(1) Registration of Businesses Act 1956
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 FIRM

• The name under which the business of the partners is

carried out is called the firm-name - s. 6 PA
• It is not a legal entity by itself and has no legal existence
separate and distinct from its members unlike an
incorporated company – does not have separate legal
personality.
 Madan Lal & Anor. v. Ho Siew Bee [1985] 2 MLJ 103;
 Alagappa Chettiar v. Coliseum Café [1962] MLJ 111

• Order 77 Rule 1, of the Rules of the High Court, 1980

provide for the commencement of legal proceedings by
and against a partnership firm in the name of the firm.

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• A person who wishes to bring an action against the firm
may either sue the partners individually or sue them in
the name of the firm.

FORMATION OF PARTNERSHIP

• A partnership agreement or the ‘articles of partnership’

is no different from any other contracts.
 It may be created orally or in writing
 There must be free consent, consideration and intention.
 It must be for a lawful purpose.
 The parties must be competent to contract. A person of
unsound mind will be incompetent to enter into a
partnership agreement.
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● A minor can be a partner in a limited sense.
• He can be admitted to the benefits of the firm.
• His share can be liable to the obligations of the firm.
• He is not personally liable for the obligations of the firm.
• He can order goods as an agent of the partnership so as to
bind the firm with liability without being personally
liable. Third parties cannot recover against a partner who
is a minor.
• If upon attaining majority, the minor fails to repudiate the
partnership agreement, then he becomes personally liable
for all obligations of the firm from the date of his
admission.

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 William Jacks & Co. (Malaya) Ltd. v. Chan & Yong
Trading Co.[1964] MLJ 105 (FC)

… “It is perfectly clear that any person, irrespective

of his competency to contract, may become an agent
and the only restriction on that is that if he is of
tender age he cannot become thereby responsible to
his principal. But that has no bearing whatsoever on
his principal's liability to third parties.”
per Thomson LP

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● See: also sections 135,136 & 137 CA 1950 on agency.
• S. 135: An 'agent' is a person employed to do any act for
another or to represent another in dealings with third
persons. The person for whom such act is done, or who is
so represented, is called the 'principal'.

• S. 136: Any person who is of the age of majority

according to the law to which he is subject, and who is of
sound mind, may employ an agent.

• S. 137: As between the principal and third persons, any

person may become an agent; but no person who is not of
the age of majority and of sound mind can become an
agent, so as to be responsible to his principal according to
the provisions in that behalf herein contained.
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● S. 7: Every partner is an agent of the firm and his other
partners for the purpose of the business of the
partnership; and the acts of every partner who does any
act for carrying on in the usual way business of the kind
carried on by the firm of which he is a member bind the
firm and his partners, unless the partner so acting has in
fact no authority to act for the firm in the particular
matter, 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.

• Every partner is an agent of the firm and his other

partners. His acts are binding on them who are his
principals and each partner is also a principal who is
bound by the acts of the other partners.

• A partner’s acts binds the firm if it is carried out in the

ordinary scope of the firm’s business. 11
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• The firm will not be bound if the partner had no authority to
act for the firm in the particular matter and the third party
either knows that he has no authority or does not know or
believe him to be a partner.

 Restoran Rizqin v. Asia Commercial Finance (M) Bhd.

[2005] 4 MLJ 157 - A partner is an agent of the firm within
the scope of his authority and a partnership has no separate
legal entity from its individual partners. As such, a suit
against a partnership was a suit against all the partners, as
though the partners were individually named in the suit – the
court applied ss. 7, 8 and 11 of the PA 1961.

• The act must be necessary for the carrying on of the business

of the partnership.
 Chan King Yue v. Lee & Wong [1962] MLJ 379.

•   12
 
• S. 8 - An act or instrument relating to the business of
the firm and done or executed in the firm-name, or in
any other manner showing an intention to bind the firm,
by any person thereto authorised, whether a partner or
not, is binding on the firm and all partners.

 the person is not a partner

 he is authorised to act
 he does the act in the name of the firm
 the act is related to the firm’s business
 the act was intended to bind the firm

- the act becomes binding on the firm.

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 RELATION OF PARTNERS TO ONE ANOTHER

 The relationship between partners comes into existence

by an agreement between them. The usual provisions in a
partnership agreement would cover such matters a:-

 nature of the business;

 the conduct and management of the business;
 the capital to be contributed by each partner;
 the proportion in which each partner will share the
profits;
 the rights and duties of the partners; and
 the dissolution of the partnership.
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• It is also usual for there to be a provision for disputes
between partners to be referred to arbitration for
solution.

• The partnership agreement is an internal document

which has effect between the partners. It does not
necessarily affect the rights of third parties who deal
with the partners without knowledge of the articles.

• The provisions of the Partnership Act will apply in

the absence of specific provisions in the agreement.

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• RIGHTS AND DUTIES OF PARTNERS IN THE
ABSENCE OF AN AGREEMENT – s. 26 PA

• All partners to share equally in the capital and profits

of the business and must contribute equally to losses.

• The firm must indemnify every partner for personal

liabilities incurred by him in the ordinary conduct of
the business of the firm.

• No partner is entitled to interest on capital before the

ascertainment of profits.

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• Every partner may take part in the management of the
business.

• No partner is entitled to remuneration for acting in

the partnership business.

• No person may be introduced as a partner without the

consent of all existing partners.

 No majority of the partners can expel any partner,

unless such a power is conferred by express
agreement – s. 27
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• Every partner must account to the firm for any benefit
derived from him, without the consent of the other
partners, from any transaction concerning the
partnership or from any use by him of the partnership
property, name, or business connection – s. 31

• Duty of a partner not to compete with the firm - If a

partner, without the consent of the other partners,
carries on any business of the same nature as and
competing with that of the firm, he must account for
and pay over to the firm all profits made by him in that
business – s. 32

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• Differences arising as to ordinary matters connected
with the partnership business may be decided by a
majority of the partners.

• No change may be made in the nature of the

partnership business without the consent of all the
existing partners.

• The partnership books must be kept at the place of the

partnership business or the principal place, if more
than one. Every partner may have access to and
inspect and copy any of them.

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 DURATION OF PARTNERSHIP

• The Partnership Agreement may provide some method

for ending the partnership.

• It may be of a fixed duration or with no fixed duration

(known as partnership at will).

• If it is for a fixed term, it can only be ended in

accordance with the terms of the agreement or by the
express provisions of the Act – by the expiration of the
fixed term - s. 34(1)(a) or by death or bankruptcy of a
partner – s. 35.
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• If it is not for a fixed term (partnership at will –
entered for an indefinite time), a partnership can be
dissolved by any partner giving notice of his intention
to do so to the other partners – s. 28(1) & s. 34(1)(c).

POWER OF PARTNERS TO BIND THE FIRM

• Every partner is an agent of the firm and his other

partners for the purpose of the business of the
partnership - s. 7

• A partner who does any act in carrying out in the

usual way business of the kind carried on by the firm,
bind the firm and his partners - s. 7
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• The partners are not liable if a partner had in fact no
authority to act for the firm in a particular matter and
the third party either knows that he has no authority
or does not believe him to be a partner.

• A partner may have actual authority i.e. authority

which has been expressly authorised by the partners.

• Outsiders can assume that the partner has authority to

do the acts that are usually done by partners in that
particular kind of business – implied or usual
authority.

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S. 10 - If it has been agreed between the partners that any
restriction shall be placed on the power of any one or
more of them to bind the firm, no act done in
contravention of the agreement is binding on the firm with
respect to persons having notice of the agreement.

• If the partners place restrictions on the authority of any

partner to bind the firm, then any act done by the partner in
breach of that restriction (i.e. he acts in excess of his
authority) is not binding on the firm with respect to
persons who are aware of such a restriction or limitation.

• It would be binding on the firm if the third party is not

aware of such restrictions.
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 LIABILITY OF PARTNERS

• 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 - s. 11
• if the partnership property is insufficient to satisfy the
debts, the creditor can levy execution against the private
property of the partners. This creates the unlimited
liability of a partner.
• If a partner dies, his estate becomes severally liable for
all such debts and obligations in so far as they remain
unsatisfied but subject to the prior payment of his
separate debts.
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• Liability of firm for wrongs

• The firm is liable for the tortious or wronful acts of any

partner acting in the ordinary course of the firm’s
business or with the authority of his co-partners – acts
causing loss or injury to outsiders - s. 12
• For eg. All partners of an accounting firm will be liable
if any one of them had been negligent in the handling of
their client’s accounts. The same would apply to a firm
of lawyers.

• Where liability of the partners is joint, the plaintiff has

only one cause of action against all partners in respect of
each debt - s. 11
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• Where liability is joint and several each partner can
be sued in turn or all together until the full amount is
recovered.

• Where a partner misapplies money or property

received from a third party the firm is liable to make
good the loss – s. 13

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 Persons liable for “holding out”- s. 16

• Where a person who is not a partner, either expressly or

by conduct, represents himself or knowingly allows
himself to be represented as a partner in a particular
firm, he is liable as a partner for the debts of the firm.

• He is liable to those persons who have on the faith of

such representation given credit to the firm.

• They must have believed that the representation was

true and had acted upon it.
 Bevan v. The National Bank Limited (1906)
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 LIABILITY OF INCOMING AND
RETIRING/OUTGOING PARTNERS

● 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 - s. 11

● A person who is admitted as a partner into an existing

firm is not liable to the creditors of the firm for anything
done before he became a partner unless by special
agreement - s. 19 (1)- has an agreement with the partners.

● The creditors of the old firm have no right under it against

the incoming partner – they are not privy to the
agreement.

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● The creditors will be able to claim against the new firm if
there was a ‘novation contract’ entered into by the 3
parties i.e. the old firm, the new firm and the creditors to
the original contract – a ‘tripartite agreement’.

● The novation agreement substitutes a new contract in

place of the existing contract – the new firm’s liability in
consideration of releasing the old firm.

● A partner who retires from a firm remains liable for the

partnership debts and obligations incurred before
retirement - s. 19(2)
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● He may be discharged from his existing liabilities by a
novation contract entered into between himself, the
members of the newly constituted firm and the creditors -
s. 19 (3).

● A retiring partner will remain liable to persons who

continue to deal with the firm after his retirement unless
he has given express notice to them of his retirement –
s. 38 (1).

● An advertisement in the Federal Gazette, Sabah Gazette

and in the Sarawak Gazette by a firm whose principal
place of business is in these territories shall be notice to
persons who had no dealings with the firm before the date
of dissolution or advertisement of the change – s. 38 (2).
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● Actual notice is required in the case of old customers.
Notice to old customers of a partner’s retirement in
newspapers is insufficient to constitute notification.

 In Re Siew Inn Steamship Co. [1934] MLJ 180, the Court

held that an advertisement published in three local
Chinese newspapers of the dissolution of the partnership
was not per se sufficient notice to those who have had
previous dealings with the firm and had not actually seen
it although they may be regular subscribers to the
newspapers.

● Express notice must be given to old customers in order to

fix them with knowledge of his retirement to prevent them
from holding a retiring partner to be liable for debts
incurred after retirement.

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 The case of Re Siew Inn Steamship Co.[1934]

On the 31st of December, 1931, the plaintiff, Tan Boon

Cheo (P), retired from the partnership and notice of the
dissolution of the partnership and his retirement from the
firm was duly given by P to the defendant Co.,
Ho Hong Bank Ltd (D), through an advertisement
published in the three local Chinese newspapers, "Sin
Chew Jit Pau“, the "Nanyang Siang Pau" and the "Min
Kuo Jih Pau" between the 12th and 16th of January,
1932, and also by verbal communication from P to D in
or about the month of March, 1932.

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After his retirement these same old customers lent money
to the firm on the security of promissory notes executed
by the remaining partners. One of the lenders later sued
the retired partner on these notes, denying having actually
seen the notice of his retirement in the papers.

The Court directed the following issue to be tried,

namely:- Whether P was or held himself out to Ho
Hong Bank Limited (D) to be a partner in the Siew Inn
Steamship Co. and, if so, at what date if any had P given
notice to D that he had ceased to be a partner of the
bankrupt firm.

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P and his witness Chow Guan Cheng stated that actual
notice was given verbally to Lim Bock Kee, the then
manager of the Bank. Bock Kee denied ever having had
the conversation referred to by P.

When once it can be shown that liability was attached to

any partner, the onus of proving that such liability has
ceased is upon that partner. The court held that the P had
not discharged this onus. The notices in the Chinese
newspapers, even though they appeared 18 times, were not
sufficient. Actual verbal or written notice of his retirement
should have been given by P. P was a partner in SISC and
that he did not give notice to D that he had ceased to be a
partner. The retired partner was liable on the notes. Actual
notice was necessary so far as old customers were
concerned.

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 This requirement was reaffirmed by the Supreme Court
in Tan Sin Moh v. Lebel Ltd. [1988] 2 MLJ 52 where
the Court held that a person who had habitual dealings
with the partnership was entitled to be specifically
notified of the withdrawal of a partner from the
partnership.
The Court also held that a mere notice of his withdrawal
to the Registrar of Business was insufficient.

 See also: Hup Aik Tin Mining Company v. Kam Hoy

Trading [1969] 1 MLJ 93 (Federal Court).

• The estate of a partner who dies or who becomes

bankrupt is not liable for partnership debts contracted
after his death or bankruptcy … s. 38 (3).
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 PARTNERSHIP PROPERTY

• S. 22 identifies partnership property as all property

and rights and interests in property:
 originally brought into the partnership stock or
 acquired, on account of the firm; or
 acquired for the purposes and in the course of the
partnership business.
• The property must be held and applied by the partners
exclusively for the purposes of the partnership and in
accordance with the partnership agreement.

• S. 23 gives statutory presumption that property

purchased with partnership money constitutes
partnership property.
36
 In Ponnukon v. Jebaratnam [1980] 1 MLJ 282
Salleh Abbas JFC provided a clear explanation of the
law regarding partnership property:-

• Whether a property is that of a partnership or separate

property of a partner depends on whether there is an
agreement among the partners touching such
property.

• In the absence of such an agreement, it will depend

on whether there is an intention on the part of the
partners to treat the property as partnership property.

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• Such intention is presumed (i.e. deemed to be
partnership property) when the property is purchased
with partnership money although the property may be
purchased by or in the name of a partner only – s. 23

• The presumption is rebutted if money for the

purchase did not belong to the partnership, for
example, money lent to the partner, in such an event
it is not partnership property.

• If no such intention can be inferred, the property is

the separate property of the partner although it may
be used for the partnership business and the
partnership may have paid for the outgoings and
expenses of the property.
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• Even if partners agree to divide and share profits, the
property used to produce the profits do not
necessarily become partnership property.

• The question of whether the property is separate

property of the partner or partnership property will be
decided on the facts of each individual case.

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 DISSOLUTION OF PARTNERSHIP

 By Agreement

• Where the partnership agreement fix a duration for the

partnership, the partnership is terminated on the
expiration of the duration.

• The partners may mutually agree to dissolve the

partnership at any time.

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 By Operation of Law

 by expiration of the fixed term if for a fixed duration,

 by termination if formed for a single adventure or
undertaking, and
 by notice if it is for an undefined time (partnership at
will).
s. 34 (1)(a)(b)(c)

 By Death or Bankruptcy

Subject to any agreement between the partners, the

partnership is dissolved by the death or bankruptcy of
any partner - s. 35 (1)
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 By Charging of Partnership Share

• Where a partner suffers his share of the partnership to be

charged for his separate debts, the other partners have
the option of dissolving the partnership - s. 35 (2)

 By Supervening Illegality

• A partnership is dissolved by the happening of any

event which makes it unlawful for the business of the
firm or its members to carry on in partnership - s. 36

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 By the Court

 S. 37 provides that on application by a partner, the court

may decree a dissolution in any of the following cases:-

• Insanity of a partner - s. 37(a)

• Permanent incapacity of a partner to perform his part of

the duties under the partnership contract - s. 37 (b)

• When a partner has been found guilty of conduct that is

calculated to affect prejudicially the carrying on of the
business - s. 37 (c)
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• when a partner willfully or persistently commits a breach of
the partnership agreement or where his conduct in matters
relating to the partnership business makes it reasonably
impracticable to carry on the business with him - s. 37 (d).

• When the business of the partnership can only be carried on

at a loss - s. 37 (e)

• Where circumstances have arisen which, in the opinion of

the court, it is just and equitable to dissolve the partnership.
 Re Yenidje Tobacco Co. Ltd [1916]

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 The case of: Ponnukon v. Jebaratnam [1980]
 Issues:-
• Whether the property in dispute (the land) partnership property or
is it the separate property of the respondent (R)?
• The PS was formed to develop the land into a housing estate. The
land was purchased by R in his name. Does that make the land PS
property?
 Law:
• The law regarding PS property can be found in ss. 22 and 23 of
the PA 1961 and as stated by the Federal Court in the case of
Ponnukon v. Jebaratnam [1980]
• Whether the property is PS property or the separate property of R
depends on whether there is an agreement, express or implied,
touching on such property?

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• If there was no such an agreement, then it has to be resolved
whether there was an intention on the part of the partners to treat
the property as PS property?
• If no such intention can be inferred, then the property is the
separate property of R.
• The property may have been used for the PS business. It may be
essential to the PS. It may be used to produce profits. The PS may
have paid for the expenses and outgoings of the property. But all
that does not necessarily make it PS property.
• Gian Singh v. Devraj Nahar [1965]
• If the property was purchased with money belonging to the PS,
then it would be deemed to be PS property even if bought by or in
the name of a partner, unless a contrary intention appears – s. 23
PA 1961.

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 Apply the law to the facts:
• There was no agreement between the partners that the land was to
be purchased or treated as a PS property.
• The purchase money for the property (RM 60,000) was paid by R.
• He paid the deposit of RM 6,500; obtained RM 5,500 from his son;
another RM 15,000 from his nephew; and the balance was from a
loan taken from a Bank.
• R also paid for the loan processing charges; valuation fee; and the
cost of the bund.
• The property was registered in the name of R.
 Conclusion:
• Based on the above facts and law, the land in dispute is the
separate property of R. It is not property that belongs to the PS.

Charles Nicholson

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