Taylor's University Undergraduate

Business Programs
Business Law (LAW60104)
Lecture 8- Introduction to Business
Structures: Partnerships Law

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 Introduction Sole-Proprietorship
• Its an individual carrying on a business.
• simplest form of business organization to establish. It only has to satisfy
requirements under Registration of Businesses Act 1956 (also for
partnerships)
• The business and the sole trader are often synonymous.
Characteristics –
- Business owned and controlled by sole trader who determines nature of
business.
- Proprietor enjoys all of the profits
- Very basic registration requirements.
- Permits and licenses will be in the name of proprietor.
- no specific governing law applicable. But for some professionals there may
be need to register as member of a professional body. Example: solicitors
and accountants
- liability unlimited. personally liable for debts incurred. They can minimize
the risk of personal liability through various insurance policies
- business normally ends upon the death or bankruptcy of the individual.

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 Partnership
Definition of Partnership –
S 3. (1) Partnership Act 1961 - Partnership is the
relation which subsists between persons carrying
on business in common with a view of profit.

Number of partners – min. 2 and max. 20 –

S 47 (2).

s.6 - persons who have entered into partnership

with one another are called a firm, and the name
their business is carried on is called the firm
name
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 s.3(1) Partnership Act 1961
• ‘relation’ it’s a relationship - Resulting from a
contract. It is not a legal entity.
Keow Seng & Co v. Trustees Of Leong SanTong
Khoo Kongsi (Penang). 283. Registered (1983) 2 MLJ
103
A partnership firm is not a legal entity and as such
cannot hold a tenancy. The firm name is not in itself
the name of any person other than the partners.
When a firm’s name is used, it is only a convenient
method for denoting those persons who compose
the firm at the time when that name is used, and a
plaintiff who sues partners in the name of their firm
in truth sues them individually, just as much as if he
had set out all their names.

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 s.3(1) Partnership Act 1961
• ‘Persons’ – individuals or companies.
• ‘a business’ - business includes every trade, occupation or
profession. Club members and NGOs are not carrying on a
business.
• ‘Carrying on’ There must be a degree of continuity. It will not
include an isolated act or transaction.
Smith v Anderson(1880) 15 Ch D 247-
Partnership implies a repetition of acts and excludes the case
of an association formed for doing one particular act which is
never to be repeated.

An isolated act can be a partnership if accompanied with

intention of repetition. This is a question of fact of each case.
Mann v D’Arcy [1968] 1 WLR 893
Parties became partners in single venture for purchase of
potatoes but they were carrying on business as buying and
selling of potatoes was kind of business the firm was set up
for.
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 s.3(1) Partnership Act 1961
• ‘in common’ – means joint participation in common business. It
does not mean all partners must take active role in affairs of
business. It means business must be carried on by or on behalf
of partners. This is question of fact of each case.

Lang v James Morrison & Co Ltd [1911] 13 CLR 1

McFarland ran sole proprietorship business trading in meat
which he contracted to ship to Morrison. McFarland later took
in Lang and Keates as partners to operate a business as stock
and station agents. Meat export was not part of its business.
McFarland told Morrison he took Lang and Keates as partners.
McFarland breached his contract with Morrison who sued Lang
because Keates and McFarland were bankrupts.

Court: Lang did not participate in the meat business. He did

not operate its accounts, make decisions. His partnership with
McFarland had separate books.

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 s.3(1) Partnership Act 1961
• ‘view to profit’ – object of business is acquisition of
financial gain. It does not matter whether business
is successful or not, whether partnership makes
profit, so long as intention is present.

Lek Bong Hwa v Lek Boon Chye ( 1999) 1 SLR

523, central to the question whether parties have
agreed to be partners was their intention to
carry on business in common with a view to
profit.

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 s.3(1) Partnership Act 1961
Chooi Siew Cheong v Lucky Heights Development
Sdn Bhd (1995) 1MLJ

Federal Court held that parties to a joint venture

agreement were not partners as they were not
carrying on a business in common. The intention of
the parties here was that of a separate businesses.
One party contributed land whilst the other party
developed and carried out the project to build houses
and shop houses. Each intended a wholly separate
business, there was no business in common with a
view of profit and therefore no partnership resulted
from the joint venture agreement.
https://youtu.be/dMI4bJmMd18?t=67
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 Rules to determine the existence of a partnership – s4
(a) joint tenancy, joint property or part ownership does
not create a partnership;
(b) sharing of gross returns does not create
partnership;
(c) sharing profits is prima facie evidence of
partnership, but—
(i) Person being repaid a debt from profits of
business is not a partner;
(ii) servant or agent of a person being paid
remuneration from profits is not a partner;
(iii) widow or child of deceased partner receiving
portion of profits is not a partner;
(iv) Lender receiving interest is not a partner in the
business;
(v) person receiving a portion of the profits for the
sale by him of the goodwill of the business is not a
partner in the business.
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 Rules of a partnership (subject to special
agreement) – s 26
(a) all partners entitled to share equally in the capital
and profits of business, and contribute equally
towards firm’s losses;
(b) firm must indemnify every partner for payments
made and liabilities incurred in conduct of the
business of the firm
(c) partner is entitled to interest of 8% p.a. for
payment or advance for the partnership from the
date of payment or advance;
(d) partner is not entitled to interest on capital
subscribed by him;

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 Creation of Partnership
▪ Contractual - agreement can be express or implied.
▪ can be implied by conduct of parties without their awareness that
they are in fact partners. For example, if two friends regularly
operate a hot dog stand on a street corner, they may be
partners if statutory definitions of partnership are satisfied.
▪ Agreement can be oral or in writing.
▪ Parties can label the relationship a JV, syndicate, consortium etc.
but must look at conduct and behaviour to determine existence
of partnership.

Ratna Ammal & Anor. V Tan Chow Soo [1964] MLJ 399
Parties entered into agreement forming a syndicate to sell
‘condensed milk’. The Respondent registered the product as a
trade mark. Issue – was the trademark property of a partnership
or the respondent’s.
Court: despite the use of the work ‘syndicate’ and not
partnership, the arrangement was a partnership as the parties
agreed to carry on the business in common with a view to profit.

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 Registering a Partnership

▪ Business includes every form of trade, commerce,

craftsmanship, calling, profession or other activity
carried on for the purpose of gain - Registration of
Businesses Act 1956 (ROBA 1956) & ROB Rules 1957

▪ Registration of a new business to be done within 30

days from date of commencement of business at any
SSM counter or through e-Lodgement services by
completing Business Registration Form (Form A)
▪ Business may be registered using personal name or
using a trade name.
▪ Business names approval is according to Rules 15,
Rules of Business Registration 1957.
▪ Business Registration can be made for period of 1
year and not more than 5 years.

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 RELATIONS OF PARTNERSHIP WITH
THIRD PARTIES
s. 7 - Every partner is an agent of the firm and his
partners in the partnership business. The acts of
every partner in the business binds the firm and his
partners, unless he has no authority and the person
he is dealing either knows that he has no authority
or does not know or believe him to be a partner.
2 parts to s 7 –
An act done by a partner within scope of actual
authority binds the partnership and all partners
Acts done by a partner with no authority but within
partnership business and 3rd party did not suspect
he has no authority, partnership and partners liable

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 RELATIONS OF PARTNERSHIP WITH THIRD PARTIES
4 requirements for 2nd part of s 7 –
▪ Transaction must be within partnership business.
Test – not only what business the partnership does
but what business other similar partnerships do.
Mercantile Credit v Garrod [1962] 3 All ER 1103
Garrod and Parkin ran garage repairing cars.
Partnership agreement stated they were not to engage
in buying and selling of cars. Parkin without authority
sold car to Mercantile who later discovered the fraud
and claimed refund from partnership. Garrod argued
Parkin did not have authority to sell cars.
Court: Garrod was liable. Sale of car by Parkin was
within scope of firm’s business.
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 RELATIONS OF PARTNERSHIP WITH THIRDPARTIES

▪ Transaction must be effected in the usual way

▪ Outsider must not know or suspect the partner
was exceeding his authority
▪ Outsider must know or believed that the person
he is dealing with is a partner

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 RELATIONS OF PARTNERSHIP WITH THIRD
PARTIES
Dr Kartar Singh v Preston Corp. [2012]
Poliklinik Ludher was set up in PJ in 1985 by Dr Menjit
Singh and Dr Kartar Singh. A branch was later set-up
in Bangsar with Dr Ranjit as a partner holding 75% share.
Ranjit terminated the tenancy of the Bangsar branch.
Menjit and Kartar claimed they are the rightful tenants
to the tenancy agreement. Only they can terminate the
tenancy agreement and not Ranjit.
Court: Dr Ranjit Singh unequivocally held or
represented himself to Mrs Foong, the landlady, as a
partner of Poliklinik Ludher who has authority to
terminate the tenancy agreement. Mrs Foong, has
reasonable basis to believe Ranjit is a partner of
Poliklinik Ludher and she, in good faith, acted on that
representation by accepting the termination of the
tenancy agreement. Her action is justified and she was
right in law to accept the termination of the tenancy
agreement of the Bangsar clinic by Dr Ranjit Singh.
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 Authority of Partner
3 types –
Actual – partnership as principal expressly
authorises partner as agent
Implied – partner/agent does an act that is usual for
him to do
Apparent – partnership/principal holds partner/agent
as having authority to do an act and 3rd party relies
on it
Sithambaram Chetty v Hop Hing [1928]
2 persons set up a business selling wine. Business
ran by managers. Public did not know about this.
Manager borrows money using partnership and
absconds with it.
Court: the manager had apparent authority. Partners
liable to repay the loan.

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 Liability of partners in contract

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

Nasir Kenzin & Tan v Elegant Group Sdn Bhd (2007)

Elegant contracted to buy shares in a company from
Wong Soon Kin and Wong Yoke Ken (vendors). The
vendors were represented by a firm of solicitors.
One of the solicitors issued a letter of undertaking
agreeing to hold the purchase money and refund it if
the sale of the shares is not registered. The other
solicitors argued that the firm consist of 3 partners,
where 2 of them had no knowledge about the
transaction.
Court: All are liable

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 Liability of partners in tort
▪ Where a partner commits a wrongful act in the ordinary
course of the business of the firm or with the authority of
his co-partners which causes loss or injury to any person
who is not a partner in the firm, the firm is liable – s 12
Where one partner, acting within the scope of his apparent
authority, receives money or property from a third person
and misapplies it; and where a firm, in the course of its
business, receives money or property from a third person,
and that money or property is misapplied by any of the
partners while in the custody of the firm, the firm is liable
to make good the loss - S 13
▪ S.14 -Every partner is liable jointly with his co-partner
and also severally for everything for which the firm while
he is a partner therein becomes liable under s 12 or 13.

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 Partnership property
All property brought into the partnership, for the partnership
business, are called partnership property - S 22(1)
Property bought with money belonging to the firm is deemed to
have been bought for the firm – s 23

Ponnukon vs. Jebaratnam [1980] 1 MLJ 282

Whether a property is that of a partnership or a separate property
depends on whether there is an agreement amongst the partners,
express or implied, touching such property. In the absence of any
such agreement, the question has to be resolved on whether
there is an intention of the partners to treat the property as
partnership property.
If no such intention can be inferred, the property is the separate
property of a partner although it may be used for the partnership
business and the partnership may even be debited with the
outgoings and expenses of the property.

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 DUTIES OF PARTNERS
Partners must render true accounts and full information
of all things affecting the partnership to other partners
– s 30

A partner must account to firm for benefits he gets,

without consent of other partners, from any
transaction concerning the partnership or from using
the partnership property, name, or business
connection.
S 31(1)

A partner must account for and pay over to the firm all
profits made by him in a business that competes with
the firm without consent of other partners – S 32.

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 DISSOLUTION OF PARTNERSHIP
(a) if for a fixed term, by the expiration of that term
(b) if for a single adventure or undertaking, by the
termination of that adventure or undertaking; or
(c) if for an undefined time, by any partner giving
notice to the other or others of his intention to
dissolve the partnership. S 34(1)

Subject to any agreement between the partners, by the

death or bankruptcy of any partner. S 35(1)

By the happening of any event which makes it unlawful

for the business of the firm to be carried on or for
the members of the firm to carry it on in partnership.
S 36

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 DISSOLUTION OF PARTNERSHIP
By the court on application by a partner, in the following
cases:
(a) when a partner is found lunatic or is permanently of
unsound mind;
(b) when a partner, becomes permanently incapable of
performing his part of the partnership contract;
(c) when a partner, is guilty of conduct that prejudices
the business
(d) when a partner, willfully or persistently breaches the
partnership agreement or conducts himself in the
partnership business that is not practicable for other
partners to carry on the business with him;
(e) when the business of the partnership can only be
carried on at a loss;
(f) When in the opinion of the court, render it just and
equitable that the partnership be dissolved. S 37
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 Consequence of Dissolution
s.40 - each partner has the authority to
bind the firm, as may be necessary to
wind up affairs of partnership, and
complete transactions begun but
unfinished at time of dissolution.

s.41 - each partner is entitled, to have

property of partnership applied in
payment of debts and liabilities of firm
and after such payment, if there is any
surplus, to pay what is due to partners.

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 Rules on Dissolution
(a) losses be paid first out of profits, next out of capital
and lastly, if necessary, by partners individually in
the proportion they were entitled to share profits;
and
(b) assets of firm be applied in the following manner
and order:
(i) paying debts and liabilities of firm to third parties;
(ii) paying each partner rateably what is due from the
firm to him for advances (not capital);
(iii) paying each partner rateably what is due from the
firm to him in respect of capital; and
(iv) the ultimate residue, if any, shall be divided among
the partners in the proportion in which profits are
divisible. S 46.

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 Limited liability Partnership (LLP)

• Governed by Limited Liability Partnership

Act 2012(LLP 2012)
• Provide for registration, administration and
dissolution of LLP etc.
• It is a body corporate and have separate
legal personality from the partners.
• Partners are not personally liable unless for
personal liability incurred by the partners.

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