Introduction to Company Law (Law 346) INTRODUCTION There are three main forms of business organisations. i.e i.

Sole Proprietorship ii. Partnership iii. Company a) Limited b) Unlimited. A Sole Proprietorship The simplest economic and legal unit is the sole proprietor that is, an individu al carrying on business either entirely alone or employing others. As an economi c unit he is very vulnerable since he can be made personally bankrupt for his bu siness trade. i.e one person in business for himself. Partnership Partnership is the relation of two or more persons carrying on a business in a c ommon view to make profit. Partnership is a form of contract involving principle s of commercial agency. These two types of business organisations are referred t o as unincorporated associations . The above-mentioned types of business organisations have no separate legal exist ence apart from the persons who conduct the business. A man may set aside proper ty for the purpose of business, but in law that property is still his. He may ru n up debts or incur liabilities in the name of the business, but the law still f ixes him with the obligation to discharge those debts and liabilities. In contrast, a company is an incorporated association. Once it is formally incor porated, it becomes a separate legal person. An incorporated company may own pro perty on its own name; once the property is transferred by the corporators to a company, those corporators cease to own the property. A company may incur debts and liabilities on its own behalf; the members will not be liable in respect of those debts and liabilities. It may be sued on its own name and sue on its own n ame. UNINCORPORATED No Separate existence apart from the persons who conduct the business. Here man may set aside property for his business but in law the property is still his. In cur liability in his name of business but the law still fixes him with the oblig ations of paying these liabilities. CORPORATE BODIES In contrast, a company is an incorporated association. Once it is formally regis tered it becomes a separate legal entity / legal person Salomon v Salomon & Co L td (1897). It has an existence apart from the person who formed it. The company can own it own property. It also can incur liabilities and can sue and be sued i n its own name. Number of Member Sole proprietor one member

Partnership - between 2 to 20 people. The upper limit is 20 because as per secti on 14(3): Partnership with more than 20 members should be registered as a compan y unless it is an association or partnership formed for the purpose of carrying on any professional .

Company On the other hand, a company must have a minimum number of 2 persons. Se ction 36 Company Act makes it an offence for a company to carry on business for more than 6 months after the membership has fallen below 2. Ability to Hold Property Company hold its own property and the company s assets are not legally own by the members. On the other hand in a sole proprietorship, the assets are that of the sole proprietor and in partnership, these are owned by the partners. Member s liability for debts. In the case of unincorporated association, the members are ultimately responsibl e for all the debts of the firm. If the firm s assets are insufficient to discharg e the firm s liabilities, the members must contribute towards those assets until t he liabilities are discharged. The liability of the members to pay the firms deb t is unlimited, and cannot be limited. Mode of taking legal proceedings. An unincorporated association has no legal personality. Therefore, any legal pro ceedings in which the firm may be involved are brought or defended in the name o f the members of the firm, and not in the name of the firm. However according to the Rules of High Court 1980 Ord 77 do allow a person to sue and be sued using the firm s name. In contrast an incorporated company must sue and be sued on its o wn name, the members have no right to do so. Duration and dissolution A sole proprietor can give up his business at anytime he wants. A partnership ma y be dissolved by agreement amongst partners. An unincorporated association dies when the members die but an incorporated organisation may live on regardless ev en without business, without directors , without members. Classification of a Company Limited and unlimited Company The company s own liability for its debt is never limited. A company must pay off every single cent it owes to the creditors. The question of members liability bec omes relevant when the company goes into liquidation, and debts cannot fully be discharged out of its assets. Unlimited company is one, which the liability of the members is not limited in a nyway. Generally speaking, when a company is wound up every present and the past member is liable to contribute to the assets of the company an amount sufficien t for the payment of its debt and liabilities and the costs charges and expenses of the winding up and for the adjustment of the rights of the contributories am ong themselves.[1] In the case of a limited company, the liability of the members to contribute tow ards the assets of the company is limited. According to Section 14 of the company s Act - a company can be :Limited by shares Limited by Guarantee Limited by both shares and guarantee Unlimited However as per Section 14A (since 1985) no company can be formed which is limite

d by guarantee with share capital.

Public and Private Company The name of a public company must end with the words public limited company. Its memorandum must state that it is to be a public company and it must have at lea st two directors. A company that is not a public company is a private company. T he important distinguishing features of a public company is that the general pub lic may be invited to buy its shares and other securities. The securities of a private company cannot be listed on the Stock Exchange; it w ill be an offence for a private company to issue an advertisement offering its s ecurities to the public.[2] A listed company is a public company but not all public company is a listed compa ny. **************************** [1] Section 214(1) CA 1965 [2] Section 15 CA 1965

LEGAL PERSONALITY NATURE AND FORMATION OF COMPANIES The law relating to companies in Malaysian is contained in the Companies Act, 19 65. This Act is based on the English Companies Act 1948 and the Australian Unifo rm companies Act 1961. It is due in these historical ties, that the English and Australian Law has some significance on Malaysian Company Law. This is why you w ill see English and Australian judicial precedents being referred to, and applie d in interpreting certain provisions of the Malaysian Companies Act. It must be stressed here that since this Act is a piece of legislation that has its provisions constantly amended to keep up with the times, there may be slight changes to company law from time to time. It would be very helpful for you to e nsure that the Act you refer to is the latest amended version. NATURE OF COMPANIES A company is a corporate body of a corporation. A corporation is an artificial l egal person. The law sees it as separate and independent of the persons who are members of that corporate body. The legal recognition given to the company is pr ovided by S.16(5) of the Companies Act, 1965. it says: On and from the date of corporation specified in the of incorporation the subscribe rs to the memorandum together with such other person as from time to time become members of the company shall be a body corporate by the name set out in the mem orandum in other words, after fulfilling all the requirement of the Act incorporate the company, and the Companies Commission of Malaysia (CCM) issues a certificate of incorporation, a new legal entity comes into existence. The company, an artifici al person, is born out of the process of law. This new entity is separate from its members. Like a natural person it has its own name and can own property. This means that the company can use own name to enter into transactions and need not go through its members, and that the company s assets do not belong to the me

mbers. The reason for creating the legal fiction of the separate legal personali ty has been said to be a matter of convenience. The separate legal personality c oncept is useful in large companies where there are many shareholders, and these shareholders are frequently changing. If the company does not have a separate l egal personality, it would mean that a change among the shareholders would requi re a transfer of the company s assets. Liabilities and contract form the former group of shareholders to the present gr oup. It would entail a lot of difficulties to deal with multiple transfers. On t op of that it would be difficult to keep up with the frequent transaction of sha res on the market. PRE-INCORPERATION DOCUMENTS After the name of the company has been approved, the persons responsible must su bmit to the CCM the pre-incorporation documents together with the required fees, and a copy of the approval letter for the use of the name. The pre-incorporatio n documents are: (i.) The memorandum and articles of association (ii.) A statutory declaration by persons before appointment as director, or by a promoter (iii.) A declaration by the person who has agreed to be the company secretary The application for the registration of the company must be made within the thre e months of the application for the reservation of the name of the company. CERTIFICATE of INCORPORATION Once the CCM is satisfied that all the incorporation documents are in order, the CCM will issue the Certificate of Incorporation to the company. This certificat e is the birth certificate of a company. Once a company has been registered, it is recognized as a separate legal entity.

TYPES OF COMPANIES Companies in Malaysia are classified according to (i) liability, (ii) private or public status. Companies classified according to liability. Types of companies. company limited by shares company limited by guarantee company limited by share and guarantee unlimited company COMPANIES LIMITED BY SHARES S.4 defines company limited by shares as a company formed on the principle of havi ng the liability of its members limited by the memorandum to the amount (if any) unpaid on the shares respectively held by them. This is the most common form of company. The liability of a member of this company will depend on whether his s hares are fully paid or not. If he holds fully paid shares, he has no further li ability to the company. If the company becomes insolvent he cannot be made to co ntribute to the assets of the company. Only if his shares are partly paid, he wi ll be liable to contribute to the company s assets, up to the amount still unpaid on his shares.

COMPANY LIMITED BY GUARANTEE A company limited by guarantee id defined by section 4 as a company in the princi ple of having the liability of its members limited by the memorandum to such amo unt as the members may respectively undertake to contribute to the assets of the company in the event of its being wound up . This type of company does not have a share capital and so does not require the m embers is specified in the memorandum of association. If the company is wound up , then a person who has been its member may be required to contribute up to his amount of guarantee towards payment of debts incurred by the company while he wa s a member. This liability extends to those who has left the company but was a m ember within a year before the company wound up. Although this type of company does not have a share capital, it is a separate le gal entity. It is not normally used for trading, but is often formed to run club s and other organizations that is maintained by subscription, social activities and donations. CLASSIFICATION AS PRIVATE OR PUBLIC COMPANIES Classification according to status Private Company According to S.15(1) restrict right to transfer shares limit number of members to no more than 50 prohibit invitation or offer of shares or debentures to public prohibit invitation or offer public to deposit money with company According to S.15(1), a company is classified as a private company if its memora ndum or articles: restrict the right to transfer shares. There is no prescribed form of restrictio n. The articles can have restrictions such as giving of pre-emption to other mem bers before shares can be transferred to other persons, or there is to be no tra nsfer of shares unless the directors approve. These restrictions will discourage membership as then the share would be difficult to sell. Limit the number of members to not more than 50. If shares are jointly held they are considered as held by one person. Employees of the company or its subsidiar ies who are not members are not counted. Prohibit any invitation or offer to the public to subscribe for shares in or deb entures of the company. Prohibit any invitation to the public to deposit money with the company. A private company may have a share capital with limited or unlimited liability. As private companies do not seek funds from public, they enjoy certain privilege s that are not given to public companies. A private company may be distinguished from a public company in having the word Sendirian or the abbreviation Sdn. as part of its name. If the company is a limited liability company then this word shoul d come before the word Bhd. e.g. the name of Syarikat Dua Lima, a private limited company, will appear as Syarikat Dua Lima Sdn. Bhd. THE RELATIONSHIP OF LEGAL PERSONALITY TO LIMITED LIABILITY It has been said that the most popular reason why a company is formed is to take advantages of the limited liability principle. However, it must be remembered t hat although a company is a separate legal personality, it can have unlimited li

ability. In order words, the shareholders may still be liable for the company s de bts. A corporate body with limited liability means the shareholders of a company limi ted by shares are not liable for more than what they have to contribute for the shares they get. If the company is limited by guarantee, they are not liable for more than amount they have agreed to contribute to the assets on winding up. The limited liability of a company has been said cost involved in the separation of ownership of the shares and control of the company. However, this may be tru e only for public companies. This has been said as a company has limited liabili ty, it reduces the need to monitor management and other shareholders. Limited li ability together with free transfer of shares, will also facilitate the market f or control. This is considered as an incentive for the management to perform efficiently. Ap art from that, and other than making the shares marketable, limited liability wo uld increase the volume of transactions that would improve the information fed t o the market place. Limited liability also allows shareholders to diversity thei r shareholdings. Lastly, limited liability will result in a positive attitude to risk taking and so would facilitate investment decisions. SEPARATE LEGAL ENTITY AND THE CONSEQUENCES THAT FLOW FROM IT. The legal recognition given to the company is provided by s.16(5) of the Compani es Act, 1965. It says: On and from the date of incorporation specified in the certificate of incorporati on the subscribers to the memorandum together with such other persons as from tim e to time become members of the company shall be a body corporate by the name se t out in the memorandum. Apart from recognizing the company as a legal entity, s.16(5) states the effect of incorporation are: shall be a body corporate capable forthwith of exercising all the functions of an in corporated body and of suing and being sued and having perpetual succession and a common seal with power to hold land but with such liability on the part of the members to contribute to the assets of the company in the event of its being wo und up Thus you can see the effect of incorporation as follows: a body corporate comes into existence capable of exercising all the functions of an incorporated company; it has the ability to sue and be sued; it enjoys perpetual succession; it has the power to hold property; and the liability of the members depend on the type of company A Body Corporate A body corporate is a legal person that is created and given recognition by the law. This legal person is actually a legal fiction. It is an artificial legal pe rson unlike human individuals who are known as natural persons. According to s.4 (1) a corporation is any body corporate wherever formed and includes any foreign c ompany. A company is a type of corporation that is recognized by the law as having power s and liabilities like an individual. The courts first recognized the company as an individual having a separate legal personality in the case of:

Salomon v A. Salomon & Co. Ltd. (1897) AC 22 Salomon was a boot and shoe manufacturer. He ran his business as a sole trader. In 1892 Salomon formed a limited liability company. He gave his wife and childre n one share each in the company. He then sold his shoe and boot business to the company for f39, 000. In consideration for the business, the company paid him pa rtly in cash, partly in 20, 000 f1 shares, and partly in f10, 000 debentures iss ued by the company. By being a debenture holder, Salomon becomes a secured credi tor of the company. Salomon continued to run the business as one-man company. The business did not d o well and after some time became insolvent. What was left of the assets of the company were not enough to pay off the creditors. It was mostly used to pay off the debenture held by Salomon. The other creditors tried to claim that Salomon h ad no right to the remaining assets as the sale of this business to the company was a sham, and that his wife and children were merely his nominees, and that Sa lomon and the company were in fact one and the same. The House of Lords held that the incorporation process made Salomon and his comp any two separate persons. Even if the business were the same as before, and it w as still managed by Salomon himself, the company was not an agent or trustee for the members. Although Salomon beneficially owned all the issued shares of the c ompany, the court also recognized him as a separate person who can be a secured creditor with enforceable rights against the company. The principle establishing the separate legal personality of the company from th e members was applied in the case of: Lee v Lee s Air Farming (1961) AC 12 Lee formed Lee s Air Farming Ltd. and held all the shares, except for one. The com pany was formed to undertake the business of aerial crop spaying. Lee was employ ed as the company s pilot. He was killed in an accident while carrying out his wor k. His wife claimed workmen s compensation under the New Zealand law, and she coul d only succeed if she could show that Lee was in effect an employee. The Privy Council held although Lee was the controller of the company, personall y he was separate from the company. He could enter into a contract with the comp any, and could be an employee. Can Sue and be Sued As the company is a separate legal entity, it can sue and be sued in its own nam e. It can sue in respect of rights that it has, and if it has liabilities, other s may sue against it. The members of the company generally cannot take any legal action on behalf of the company. Only the company itself can enforce its rights . This is called the proper plaintiff rule and it was established in the case of: Foss v Harbottle (1843) 2 Hare 461 Two shareholders of a company brought action against directors of the company fo r misapplication and improper use of the company s property. The court held that as the injury complained of was injury to the company and no t to the members. As such the members could not take action. Only the company ha d the right to sue.

Perpetual Succession After a company is incorporated, it continues to exist until it is dissolved acc ording to the law or it is struck off the register. Even if the membership chang es, or all the original members die, the company does not come to an end. This c ontinuous life of the company is said to be perpetual succession. In the case of Re Noel Tedman Holdings Pty Ltd. (1967) QdR 561; The company had a husband and a wife as its only shareholders. They were also th e company s directors. They died in an accident, leaving behind an infant child. A fter their death the company still existed. The problem that arose was, as the s hareholders and directors had died, the shares could not be transferred as accor ding to the will of the deceased to the infant child. The court thus allowed the personal representative of the deceased to appoint di rectors of the company, so that these directors could allow the transfer of the shares to the child. Power to Own Properly S. 19 mentions that a company has the power to hold land . This can be taken to mea n that a company can own other types of property too. The property of a company is its own, and not that of its members. Even if a member holds almost all the s hares of a company, he does not have any proprietary interest in the company s pro perty. Once a person has sold or given his property to the company he no longer has any right over it. The property belongs to the company, and the member no lo nger has any right or interest. Macaura v Northern Assurance Co. Ltd. (1925)AC619; Macaura owned an estate and he sold all the timber one the estate to company cal led Irish Canadian Sawmills Ltd. All the shares in the company were owned by him or his nominee. Macaura had insured the timber that he sold to the company in h is own name. After the insurance was taken, a fire broke out destroying the timb er. When Macaura claimedn the insurance company refused to pay. The House of Lords agreed that Macaura had no right to claim, because when he so ld the timber to the company, he had given up his interest in it. The timber was the property of the company and Macaura no longer had insurable interest in it. Liability of the Members Once a company is incorporated it is liable for its own debts and obligations. T he members are not responsible for it. This is one of the advantages of a compan y that has limited liability. In a company limited by shares, the members will m ake a contribution to the capital and he will be given shares. If the company sh ould suffer losses, the shareholder is not liable to contribute any more to the company if he has fully paid for his shares. His actually loss would be the amou nt he has paid for the shares. Creditors of the company cannot be take any actio n against the members, because the members are separate from the company. In the case of In the Application for Re Yee Yut Ee (978)2 MLJ 142

Yee was the secretary of a company that was a wholly-owned subsidiary of an Amer ican corporation. The company had retrenched their staff and dispute arose as to the retrenchment benefits. The matter was brought to the Industrial Arbitration Court where an award was made in the company s absence. As the company did not co mply with the award, the Arbitration Court ordered that Yee be personally liable as he had been appointed director by then. The High court held that a director is nor liable for the company s debts.

LIFTING THE VEIL OF INCORPORATION The veil of incorporation is a fiction created by law separating the company as a legal personality from the people behind it. Once a company is incorporated, t his veil comes down separating the company from the members. Normally the courts would not look beyond the corporate veil to see who is behind the company and why the company was established. As you have seen from the effect of incorporation, the shareholders of a company cannot be personally sued for the company s debts a nd obligations. Sometimes the strict application of the separate legal entity principle, does ha ve its disadvantages. We have seen in Macaura s case where the application of the separate legal personality principle caused hardship to the one who owned almost all the shares of the company, who cannot claim for insurance taken under his o wn name. There are also cases where third parties suffer. Where a company is lim ited liability company, the creditors will suffer if the company incurs debts wh ich it is unable to pay, as the shareholders are not liable beyond the amount th ey have contributed in full for their shares. Due to some of the undesirable consequences of incorporation, company law recogn izes a number of exceptions to the principle of veil of incorporation. Under the se exceptional circumstances, the law looks at the situation and will ignore the separation between the company and its members or officers. This is called Lifti ng the veil . When the court lifts the corporate veil, the members or officers wil l be made liable for the company s obligations. The corporate veil is lifted under situations provided by statue, and also according to the judicial decision unde r the common law.

[1] [2] [3] [4]

Section Section Section Section

36 CA 1965 44(2) CA 1965 48(4) CA 1965 121(2) CA 1965

PARTNERSHIP Meaning and Nature of Partnership Partnership[1] is defined by Section 3(1) of the Partnership Act 1961 as the rel ation, which subsists between persons carrying on a business in common with a vi ew of profit [2]. No person may be a partner with himself. There must be at least two or more persons to form a partnership. Section 3(2) excludes from statutory

definition of partnership. The relation between members of any company association which is:a) registered as a company under Companies Act, 1965 or as a co-operative societ y under any written law relating to co-operative societies or b) formed or incorporated by or in pursuance ofi) any other law having effect in Malaysia or any part thereof; or ii) letters, patent, Royal Charter or Act of the Parliament of the United Kingdo m. Clubs and societies as well as mutual benefit organizations and building societi es cannot be considered as partnership. It was held in Soh Hood Beng v Khoo Chye Neo (1897) 4 SSLR 115 that Chinese loan association does not fall under the amb it of partnership. By virtue of Section 47(2) of the Act there cannot be an asso ciation of more than twenty persons formed or carrying on business in partnershi p. As that contravenes Section 14 (3) of the Companies Act 1965, unless it is a partnership of professionals, eg doctors, solicitors or dentists. To explore partnership in detail it is worthwhile exploring the characteristics as revealed by the definition.. 1. The relationship, which subsists, is one contract. A partnership agreement is a contract. However, it is not enough just to agree to be partners; you must al so be in a business, which has started. eg. if Airil and Juanpe decide that they will run a shop as partners, they are not partners in the eye of the law until the shop is actually operating. Preparation stage is not partnership contract. a s we can see in the case of Spicer (Keith) Ltd v Mansell [1970] 1 All ER 462, M and B lost their jobs. They agreed to go into business together and for a limite d company to run a restaurant. While they were forming the company and before it had received its certificate of incorporation from the registrar, B ordered som e goods from Specier s for the business. They also opened a bank account in the na me of the company. The company was eventually formed but not bound by the contra ct which B had made because it was not in existence at the time. B went bankrupt before Spicer s had been paid. So Spicer sued M on the basis that he was a partner artners. They were not carrying business together aring to carry on a business as a company as soon rather than prove in a bankrupt, of B. Held. B and M were not p in partnership. They were prep as they could

2. A partnership is between persons, but a company, being a legal person can be a partner with human person. the members of the company may have limited liabili ty while the human person has not. Two mote limited companies can be a partner. 3. Parties must be carrying on a business, and for this reason a group of people who run a social club would not be a partnership. 4. There must a view of making profit. 5. Sharing gross profit. According to Sir Montague Smith in Mollowo, March & Co v Court of Wards (1872) L R 4 PC 419 at 436, to constitute a partnership the parties must have agreed to ca rry on business, or to share profit in some way common.[3]. Thus in a partnershi p, each partner is an agent whose acts are binding on the other partners who are his principals, and each partner is again a principal who in turn is bound by t he acts of the other partners. Section 7 provides: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 actin g 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 no t know or believe him to be a partner. Firm and Firm Name Persons entering into partnership with one another are, for the purpose of Partn ership Act, called collectively a firm, and the name under which their business is carried on is called the firm name. Contrary to popular believe, a partnershi p does not have to be created by a formal deed. For example, two individuals, wh o have started a business in retailing in pursuance to an agreement to become pa rtners, will be considered by law to be partners until the conclusion of the par tnership agreement. A partnership business must be registered under the appropriate law, depending o n the location of the business. In Peninsular Malaysia it is the Registration of Business Act 1956. A creditor is entitled under Section 6 of the Registration o f Business Act5 1956 to rely on the particulars kept in the Business Registry to ascertain whether a person has remained a partner of a firm at the commencement of a suit[4]. In both English and Malaysian law, a firm has no legal existence distinct from i ts members . It has no legal entity. In Alagappa Chettiar v Coliseum Caf [1962] M LJ 111, The appellant is the owner of premises known as No 102 Batu Road and the respondent is a firm of partners carrying on business of a cafe and hotel in No s 98, 100 and 102 Batu Road. The present appellant brought an action in the Sess ions Court for recovery of possession of his premises No 102 and for mesne profi ts. The learned President was of the opinion that the defendant firm though regi stered as a business had not the power to become tenants as so constituted and h e gave judgment for the appellant. The respondent appealed to the High Court and Hashim J allowed the appeal. From this decision the appellant appealed to the Court of Appeal. A preliminary point was raised by counsel for the respondent that as he amount or value of the subje ct matter at the trial is less than five hundred dollars there was no right of ap peal unless leave was obtained from the High Court or from the Court of Appeal. The only other point raised was that it was suggested that since a partnership f irm is not a legal entity in law, the firm cannot hold a tenancy. rejecting the opinion of the trial court that the partnership known as Coliseum Caf, although r egistered as a business, had no power to become tenants as so constituted, his L ordship went on to say that a single individual can be a tenant, and equally can eight partners be joint tenant . Coliseum Caf or Hotel, as such is not a legal per sona, but a label used by a number of individuals trading in partnership under o ne name.

Held: (1) the profits claimed must be taken into account in determining whether the am ount or value of the subject matter was more or less than $500; (2) in this case the respondent had not made out the allegation on which his pre liminary objection rested; (3) the letting in this case created the relationship of landlord on the one han d and the partners on the other, and though there had been a change of partners over the years, members of each new partnership arising from each change by virt

ue of s 206(g) and (j) of the Contracts (Malay States) Ordinance, 1950, had cont inued de jure to assume obligations and enjoy benefits of the tenancy. This foll owed from the fact that when the tenancy agreement was made no reliance was plac ed upon the personnel of the Partners Consideration Affecting Existence of Partnership (1) Joint Tenancy and Tenancy in Common[5] Joint Tenancy and Tenancy in Common refers to ownership of property by two or mo re persons. Such an ownership alone does not imply the existence of a partnershi p if it is not designated to share the net profit as a result of the relationshi p. A joint tenancy arises where there exists (a) unity of possession (b) unity of t itle (c) unity of time (d) unity of interest. The most distinct element in such tenancy is survivorship, on the death of a joint tenant, the entire property ves ts in the survivor or survivors A tenancy in common arises when two or more persons own distinct and undivided s hare in the property. The death of a tenant in common does not result in the acq uisition of his shares by the surviving partners but passes to his next of kin o r according to his will if he has left one. A joint ownership of a land or any property by two or more parties does not nece ssarily make them partners, not even if the actually conducted their business ac tivities on the property. (2) Sharing of Gross Returns[6] A distinct must be made between a specific interest in the profits and a claim o n the gross takings. This is best illustrated in the case of Sutton & Co v Grey[ 7] in which the court held that the commission earned by one, for business intro duced by his to a firm to stockbrokers, did not amount to a specific interest in the profit. In Cox v Coulson[8] the defendant, a theatre manager was sued as a partner, for an injury alleged to have been caused to the plaintiff by a person the plaintiff claimed to be the defendant s partner. The only relationship between the defendan t and that person was an agreement to share whatever might come from a theatrica l group performance. The court held that there was no partnership in this situat ion.

Sharing of Profits[9] As general rule, a person who receives a share of the profits is prima facie dee med to be a partner of the firm but the receipt of such share, or of a payment c ontingent on or varying in the profit of a business, does not of itself make him a partner in the business. Here the court has to examine all the circumstances of the cases in order to ascertain the intention of the parties, without giving undue weight to any of such circumstances including the question of the sharing of profit.[10] In Davis v Davis [1984] 1 Ch 393 two brothers held certain houses as tenants in common. They also had a business. They let one of the houses and employed the proceeds in enlarging the business. It was held that they were part ners as to the business but not to the houses, and the property acquired for exp anding the business was not partnership property.

If one advances a sum of money (RM 25,000) to a firm and receives payment by ins tallments of RM 500 monthly, this does not qualify him as a partner. Payment can be in the form of a salary plus a commission of the share of the profits. This arrangement does not make the recipient to be considered as a partner. Sometimes this category is also known as salaried partner. In Walker v Hirsh[11] plaintiff advanced a monetary sum to H & Co, controlled an d owned by two individuals. P signed an agreement with H & Co which included cla uses, inter alia, that P would be paid salary plus one eight (1/8) of the profits , and losses and the agreement could be determined with four moths notice. P was previously a clerk and continued to discharge clerical duties in H & Co after t he agreement. The firm gave his notice as agreed, in which case he brought an a action claiming to be a partner and demanding the dissolution of the firm. The c ourt held that he was only a servant of the firm and not as partner as what he c laims to be. Formation of Partnership The agreement is not required by the partnership Act 1961 to take any special fo rm, though it is usually written. Writing is preferred as it makes it easy to as certain the right and duties of the partner. In an agreement to form a partnersh ip, as in all contracts, there must be free consent and consideration. Capacity to be a firm s member Persons who have capacity to contract, including those of a religion, women, lim ited companies, and aliens may enter into the partnership agreement but others a lso may do the same thing in certain instances. According to the age of Majority Act 1971, a minor is a person under the age of 18. In William Jacks and Co (Malaya) Ltd v Chan and Yong Trading Co[12], The pla intiffs claimed against the defendants the sum of $12,734.91 for goods sold and delivered by the plaintiffs to the defendants. The writ was served on Chan and Y ong the partners of the defendant firm. Yong did not take any steps to defend bu t Chan denied the plaintiffs claim on the following grounds namely that (a) no fi rm by the name of Chan & Yong Trading Co ever existed and that if such a company did exist he was not a partner thereof (b) he had not in any way represented or held himself out as partner of the said firm (c) the goods bought from the plai ntiffs were for the personal use of Yong who was a minor and that therefore the partners were not liable. Held: (1) Chan was a partner of Chan & Yong Trading and Chan & Yong Construction and on th e evidence Chan & Yong Trading Co and Chan & Yong Trading were one and the same firm because there was no evidence that there were two separate firms by these two s eparate names; (2) Chan represented himself to be a partner in the firm by approaching a salesm an of the plaintiffs to ask for credit facilities with the plaintiff company, by registering the partnership with the Registrar of Businesses and by opening a b anking account with his own money in the name of the partnership with the Bangko k Bank. Each mode of representation was sufficient to fix him with liability as a partner of the firm; (3) the fact that Yong made use of the goods bought from the plaintiffs for his own purpose did not mean that the partnership and consequently the partners were not liable. Further as Yong had not taken any steps after attaining the age of majority to repudiate the partnership he was also liable as a partner of the fir m. However in Goode v Harrison [1984] AC 607 a debt contracted during minority woul

d not bind the contractor of he did not repudiate the partnership agreement on a ttaining the age of majority. It was further held that to avoid incurring liabil ity on the firms future debts the minor who became of age should repudiate the p artnership agreement before such debts were incurred. Types of Partners Partners can be described as follows a) A general partner that is, he is a partner in the fullest sense. b) An active partner that is , he is a partner who actively participates in the management of the business and is known to the world as a partner. c) A dormant partner sometimes called as the sleeping partner, that is, a partne r who takes no active part in the management but is nevertheless liable as a par tner. d) A quasi partner that is, a person who, in fact, is not a partner but who is l iable for debts of the partnership as a consequence of holding out, that is caus ing people to believe he is a partner. e) A salaried partner commonly found in professional firms, may receive a fixed remuneration irrespective of profits or fixed salary every month plus a small pe rcentage of the profits. The firm is fully responsible for his acts Relations of partners to outsiders Every partner is an agent to 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 the usual was business of the kind carried on by the firm of whi ch he is a member bind the firm and his partners, unless the partner so acting h as in fact no authority to act for the firm in the particular matter, and the pe rson with whom he is dealing either knows that he has no authority or does not k now or believe him to be a partner[13]. . British Homes Assurance Corporation v P eterson [1902] 2 Ch 404 The above mentioned section states that each partner in an agent to other partne r. Each partner when contracting with outsiders are agents and principals at the same time. There are four elements which must be satisfied for the act of the partner to bi nd the firm and other partners. 1. the act must be done in relation to the partnership business 2. carrying on usual way of business 3. the act must be done in the capacity as a partner and not as an individual pe rson. 4. the person with whom he is dealing either knows that he has no authority or d oes not know or believe him to be a partner. An act or instruments relating to the business of the firm and done 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 the partners[14]. Re Briggs & Co (1906) A father and son were partners in a firm. The firm was in financial difficulties . They were being pressed by the creditors and they have no money to pay back th e creditors. The assigned book debts to the creditors. The son deal with this wi thout informing the other partner i.e the father. Later they firm was declared b ankrupt and the trustee sought to set a side the agreement stating that it was e xecuted by the individual. Court held that the agreement was bonding because it was an instrument relating to the business of the firm and there was some intent

ion to bind the firm. When one partner pledges the credit of the firm for a purpose apparently not con nected with the firm s ordinary course of business, the firm is not bound, unless he is in fact specially authorised by the other partners; but this section does not affect any personal liability incurred by an individual partner.[15] This section explain that if a partner uses the fund of the firm for his persona l purposes which is not connected with the ordinary course of business, than the other partners will not be liable for his act, but if it was authorised by the other partners therefore all the partners can be made liable. 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 contrav ention of the agreement is binding on the firm with respect to persons having no tice of the agreement.[16]

Liability of Partners Every partner is liable jointly with the other partners for all debts and obliga tions of the firm incurred while he was a partner.[17] If a partner dies, his es tate becomes severely liable for the debts and obligations in so far as they rem ain unsatisfied but subject to the prior payment of his separate debts. If a partner who is not authorised to act on behalf of the firm for any transact ion, and the third party knows about it, and if the third party goes on to contr act with the unauthorized partner, the other partners cannot be held liable for his unauthorised act. Illustration. Linda has supplied furniture worth RM50,000/- to the firm of Azizul, Samdan and Najib Enterprise. Linda has not been paid her 50,000/-. Linda may sue Azizul, Samdan and Najib Enterprise. But if there is insufficient common partnership property to satisfy the debt, she can levy execution against the private property of the partners Azizul, Samdan and Najib.. On the other han d, Linda may choose to sue only one partner. Incoming Partners When a person is admitted as a partner into an existing firm he immediately assu mes the liability of a partner but he will not be liable for anything done befor e he became a partner except by special agreement[18]. Although the special agre ement is enforceable by any of the parties to it, creditors of the old firm do n ot have any right under it against the incoming partner. Therefore any debts con tracted before he joined the firm are to be shouldered by his co partners alone. However the Partnership Act does not impose any restriction or prohibit ant inc oming partner from concluding an agreement whereby he holds himself liable to th e firm s creditors for debt contr4acted while he was the partner of the firm Retiring Partners When a partner retires from the firm, he remains liable for the partnership debt s incurred before his retirement. This is clearly stated in Section 19(2), which says that a partner who retires from the firm, he remains liable for the partner ship debts incurred or obligations incurred before retirement .

However a retiring partner may be discharged from any existing liabilities by an agreement to that effect between himself and the members of the firm as newly co nstituted and the creditors, and this agreement may be either express or inferre d as a fact from the course of dealing between the creditors and the firm as new ly constituted.[19] Where the debts incurred after a partner s retirement, he is still liable to perso ns who deal with the firm after a change in its constitution unless he has given express notice to such persons that he is no longer a partner. In Phillips Singapore Private ltd v Han Jong Kwang & Anor [1989] 2 MLJ 323, it w as held that the mere fact of registration of retirement in the Registry of Busi ness will not give notice to a third party of that party. Liability of partners Every partner is liable jointly with the other partners for all debts and obliga tions of the firm incurred while he was a partner. a) A partner s liability in contract is governed by Part II of the Partnership Act 1961. According to that, a partner s liability for debts and obligation if the fi rm incurred while he is a partner. This means that there is only one cause of ac tion and if it is exhausted no further action against any member of the firm can be commenced. [20] b) Liability in torts has been provide for in Section 12 of the Partnership Act 1961. It is to be noted here that by virtue of Section 14 a partner is jointly a nd severally liable for torts committed by co partner while both are members of the firm. c) Under section 13 (a) of the Partnership Act 1961, a partner is liable for his co partner s misapplication of money received by the co partner in the course of his apparent authority Rights and duties of partners in the Absence of Agreement all partners are entitled to share equally in the capital and profits of the bus iness and must contribute equally to losses. Every partner may take part in the management of the firm No partner is entitled for any remuneration while acting as a partner No person may introduce a partner with the consent of other partners No partner is entitle to the interest on capital before the ascertainment of the profits Dissolution of Partnership Partners are at liberty to fix the duration of the partnership. Where no fixed t erm has been agreed upon for the duration of the partnership, any partner may te rminate the partnership at any time on giving notice of his intention to do so t o all the other partners section 28(1) By agreement The partnership articles may fix the duration of partnership, and the partnershi p is terminated on the expiry of the period. The partners may mutually agree to dissolve the partnership at anytime. By operation of law

Expiration. If the partnership it entered into for a fixed term (s.34 (1)(a)) or for a single adventure or undertaking (s.34 (1)(b) ), the partn ership is dissolved on the expiration of the fixed term or termination of the ad venture or undertaking. Notice. If the partnership is entered into for an undefined time, any partner ma y determine the partnership at any time by notice to the partners (s.34 (1)(c)). Such a partnership is a partnership at will and may be determined at any time o n notice. The partnership is dissolve as from the date mentioned in the notice a s the date of dissolution. If no date is mentioned, it is dissolved from the dat e of the communication (s.34 (2)). Death or bankruptcy Every partnership is dissolved as regards all the partners by the death or bankr uptcy of any partner. By charging on shares Where a partner suffers his share of the partnership property to be charged with payment of his personal debt, the other partners have the option of dissolving the partnership (s.35 (2)). By supervening illegality If an event occurs which makes it unlawful for the business of the firm to be ca rried on or for the members of the firm to carry on in partnership, the partners hip is dissolved (s.36). 6. Dissolution by the Court The courts by virtue of section 37 of the Partnership Act 1961 may dissolve a pa rtnership on the application by the other partner. a) Partner s mental incapacity The court may dissolve the firm when a partner becomes in sane by virtue of sect ion 37 (a). The partner concerned must be unable to perform his duties, because of mental disorder, of managing his property and affairs. The insanity must be o f permanent nature, otherwise there can be no grounds to dissolve the partnershi p.[21]

b) Partner s physical incapacity According to section 37(b) Partnership Act 1961, The incapacity must be permanen t. In Whitwell v Arthur (1865) 35 Beav 140, a partner was paralysed for some mon ths. By the time the case reached the court the partner had recovered and the co urt did not grant the dissolution c) Conduct Prejudicial to the business Section 37(c) Partnership Act 1961 provides that a partnership may be dissolved when a partner is found to be guilty of any misconduct. This situation will be c onsidered by the courts a s affecting prejudicially the carrying on of the busin ess. Moral misconduct is not enough unless, in the view of the court, it is like ly to effect the business. In snow v Milford (1868) 18 LT 142, a partner s massive adultery all over Exeter was not regarded by the court as sufficient grounds fo r dissolution under the section.

d) Breach of agreement The court may dissolve a partnership by section 37(d) partnership Act 1961 when one partner breaches the partnership agreement either willfully or persistently. Here the word willful means a serious breach inflicting damage to the business or on the firm. However the court will not interfere if the breach was a minor o ne and has no impact on the business of the firm. Thus occasionally bad tempered or behaving rudely will not suffice. Note: No partner can force dissolution by his own default. e) Business carried on at a loss. This is provided by section 37(e) Partnership Act 1961. if the business can only be carried on at a loss that it can be petitioned to the court to dissolve the partnership. As we know the essential of having a partnership is in order for tw o or more people to get together in the common view of making profit. If this pu rpose is defeated then it is proper for the courts to dissolve the partnership. f) On Just and equitable ground. According to section 37(f) Partnership Act 1961 the court may dissolve the partn ership if it is just and equitable to do so. In re Yenidje Tobacco Co Ltd 2 Ch 4 26, a company dissolution based upon the fact that the company was in reality a partnership, that deadlock between the partners is enough for dissolution, even though the business is prospering.

[1] The partnership comes into existence when two or more individuals pool their skills, labour, capital and other resources together to form a business concern jointly The law of partnership in Singapore and Malaysia 2nd Edt Peter Knh Soon Kwang [2] Mollwo, March & Co v The Court of Wards (1872) L.R 4 PC 419 [3] Yeow Chesn v Teo Guan Chiang [1948] MLJ 154.. [4] Hup Aik Ting Mining Co v Kam Hoy Trading [1969] 1 MLJ 93 [5] Section 4(a) [6] Section 4(b) [7] [1894] 1 QB 285 at 291. [8] [1961] 114 L.T 599 [9] Section 4(c) [10] Davis v Davis [11] (1884) 278 Ch D 460 [12] [1964] MLJ 105 [13] Section 7 of the Partnership Act 1961 [14] Section 8 of the Partnership Act 1961 [15] Section 9 of the Partnership Act 1961 [16] Section 10 of the Partnership Act 1961 [17] Section 11 Osman v Chang Kang Swi (1924) 4 FFMSLR 292 [18] Section 19(1) [19] Section19(3) [20] In England this situation has been changed by s. 3 of the Civil Liability ( Contribution) Act 1978. [21] Jones v Noy (1833) My & K 125