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Partnership Act, 1961


(Revised 1974)
This Act is based on the English
Partnership Act, 1890.

Section 47(1) of the Act states
that the English principles of law
will continue to be used in
Malaysia, except where they are
not in agreement with the
express provisions of the Act.

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DEFINITION OF PARTNERSHIP
Section 3(1) defines partnership as:
the relation which subsists between
persons carrying on a business in
common with view of profit.

Excluded under Section 3(2)
Companies, co-operative societies,
associations formed under any Malaysia Act of
Parliament or other law, or Act of U.K
Parliament or Charter, clubs, societies, and
mutual benefits organizations or building
societies -

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To understand the meaning of partnership,
we need to examine the definition:
Relation.
Persons.
Carrying on a business.
In common.
With a view of profit.

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RELATION
A partnership is actually about relationships
between two or more persons.

The words relation implies that there is some
form of agreement or contract between
these persons.

The agreement could be expressed (in the
ptp agreement) or implied (from association of
events, the conduct of the parties or certain
circumstances surrounding the relationship).
Wong Peng Yuen v Senanyake (1962)28
MLJ 204
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RELATION
As the basis of the relationship of the partners
is a contract, the Contract Act 1950 applies
to partnership.

The partners must know or impliedly know
that there is some relationship with the other
person.(ibid)

The relationship (the FIRM) is not a LEGAL
ENTITY (like a co.)as partners are liable both as
Principals & Agents for each other.
Keow Seng & Co. v Trustees of Leong San
Tong Kho Kongsi(Penang)Registered
[1983]2MLJ 103
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PERSONS
Plural persons implies more than one member.

Maximum number of persons S. 14(3)(b)
Companies Act, 1975, limits the number of
partners in an ordinary partnership to twenty,
but there is no limit for professional firms which
cannot be incorporated under the Companies Act,
1965. S. 47(2) Partnership Act, 1961 also does
not allow more than twenty members in a
partnership.


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PERSONS
If more than twenty, the entity will not be recognized as a
partnership.

Tan Teck Hee v Cheng Tian Peng [1915]2 F.M.S.L.R.161 the
court declared that a firm with 25 persons could not take a legal
action in court as a partnership, as it was not recognised as a
valid partnership.

Tan Ching Cheang v Estate Trust Agencies (1926) Ltd. [1932]
F.M.S.L.R.129 the original membership of more than 20 was
trimmed down before beginning a legal action. The court still did
not recognize it as a partnership. The initial invalidity still
remained.

Shim Fatt v Leila Bus Road Co. [1957] SCR 3 the court decided
that the plaintiff could not claim their money back from a firm that
had more than twenty members, because legal action could not
be taken against a firm that was not at law considered as a valid
partnership.
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CARRYING ON A BUSINESS...
A partnership is normally formed for commercial
venture. The term business has been defined by s.2
as: includes every trade, occupational or
profession.

Customs and Exercise Commissioner v Lord
Fisher [1981]2 All.E.R 262 where the landlord invited
several friends and relatives to a pheasant shoot for a
small fee, the court decided the venture was not
considered a business, although detailed preparations
were made for the occasion.

Soh Hood Beng v Khoo Chye Neo (1897)4 S.S.L.R
115 the court held that the efforts several persons
making individual contributions to establish a loan
society with the purpose of lending money to its
members in turns cannot be as considered as a
business.
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...CARRYING ON A BUSINESS
The words carrying on a business denotes the present tense. If the
persons concerned entered into transactions in the midst of preparing to
carry on business as a company, no partnership can be construed as in:

Keith Spicer Ltd. v Mansell [1970]1 All ER 462
M and a Mr. Bishop decided to go into business together and to form a
limited company which was to carry on the business of the defendants
restaurant. Mr. B ordered goods from the plaintiff to be used by the
company after it had been formed (which it eventually was). The goods
were not paid for, so the plaintiff sued for the price on the grounds that
the defendant, M, was liable because a partnership existed between Mr. B.
and M.
The Court of Appeal held that the actions failed because there was no
evidence that at the time Mr. Bishop ordered the goods, the defendant
and Mr. Bishop were carrying on a business in common with view of profit
within the meaning of the U.K S.1 (1) of the Partnership Act 1890.
Evidence merely showed that they were preparing to carry on a business
as a company as soon they could.

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IN COMMON
by or on behalf of all the other partners - business
is carried out for all the other partners benefit (or
even detriment). Even where there is sharing of
profits of a business, it is not a partnership unless
the business involves participation of all the
partners.

Even if the word partnership has not been used, as
long as business is carried out in common, it is
deemed a partnership Ratna Ammal & Anor v Tan
Chow Soo [1964]MLJ 399.
use of the word syndicate did not preclude a
partnership
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WITH A VIEW OF PROFIT
The business must be one carried on with a view of profit.
Financial returns must be the motive.
The word profit is not defined by statute. An acceptable
meaning was given by Fletcher Moulton LJ. in Re Spanish
Prospecting Co. Ltd. [1911]1 Ch 92 where he considered
gross profit as profit.
What is clear from the definition is that business must be
carried out with the intention of making a profit. Where
several persons carry on a business with a view of making
profit, it fulfils the definition of S.3 (1) even if they do not
make any profits.
Soh Hood Beng v Khoo Chye Neo, one of the reasons why the
court decided that is was not a partnership was because the
intention to make profits did not exist in the activity that was
carried out by the persons involved.

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DETERMINING THE EXISTENCE
OF A PARTNERSHIP
S. 4 specifically sets out rules to determine certain
relationships that do not make up a partnership. But it is
not complete.


In determining the issue as to whether a relationship is a
partnership or not, the circumstances surrounding the
relationship, including any written or verbal
agreement and the conduct of the parties will have to
be taken into consideration.

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DETERMINING THE EXISTENCE
OF A PARTNERSHIP

Aw Yong Wai Choo v Arief Trading Sdn. Bhd & Anor
[1992]1 MLJ 166
Plaintiff had entered into S&P agreement with Arief, a
housing developer, who failed to complete the development
project and then entered into a joint venture agreement
with the Perak S.D.C. whereby the Corporation completed
the project. Issue : whether Arief and the Corporation were
partners.
It was held by the High Court; on the evidence that a
partnership existed between the defendants. To find the
existence of the partnership, court must see what the real
intention of the parties is, which is not necessarily the
expressed intention of the parties.

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The rules for determining the existence
of partnership as set out under section 4
concerns three situations:

Joint tenancy and tenancy in common.

Sharing of gross returns.

Receipts of share of profits.

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JOINT TENANCY AND TENANCY IN COMMON
S. 4(a) joint tenancy, tenancy in common, joint
property, common property or part ownership does
not of itself create a partnership as to anything so
held or owned, whether the tenants or owners do or
do not share any profits made by the use thereof;

The words joint and common mean two or more
persons involved in the holding of property.

It means that a partnership does not exist just
because any property that is held or owned
jointly or commonly is used, and out of the use of
the property that is held regardless of whether such
profit obtained is divided among the co-owner or
tenant or not.


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JOINT TENANCY AND TENANCY IN COMMON
Davis v Davis (1894)70 LT 265: A father left his
two sons his business and three freehold houses
in equal shares as tenants in common. They let
one of them and employed the rent in enlarging
the workshops attached the two houses. They
continued to carry on the business. They each
drew out from it a weekly sum, but no accounts
were kept. They rent of the third houses was
divided between them.
The Chancery Division held that there was a
partnership as to the business, but not as to the
houses.

French v Styring (1875) N.S 375 the court decided
that a partnership did not exist between several
persons who jointly owned a race horse.

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SHARING OF GROSS RETURNS
S. 4(b) the sharing of gross returns does not itself create a
partnership, whether the person sharing such returns have or
have not a joint or common right or interest in any property
from which or from the use of which the returns are derived;

This rule means merely just because a person receives a part
of gross returns, it does not make him a partner.

Gross returns, however, must be differentiated from net profit.
Gross profit is whatever that a business gets, whereas, net
profit is the income earned after all expenses have been
deducted.

The origin of this rule was explained by C.D Drake in Law of
Partnership. He said that this rule was a way of avoiding the
principles that saw sharing of profits as creating a partnership.


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SHARING OF GROSS RETURNS


Cox v Coulson [1916]2 KB 177:
The defendant was a manager of a theatre, and agreed
with a Mr. Mill to provide the theatre, and pay for the
lighting and the playbills. He was to receive 60% of the
gross takings, whilst Mr. Mill was to provide and pay for a
theatrical company and provide the scenery and receive the
remaining 40%. The plaintiff was injured by a short fired by
an actor during the performance of a play at the theatre.
She sought inter alia to make the defendant liable on the
ground that he was a partner of Mr. Mill.

It was held, by the Court of Appeal that the defendant
could not be made liable on this ground because he was not
a partner, for by s.2(2)of the UK Partnership Act 1890 the
sharing of gross returns did not of itself create a
partnership.

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RECEIPT OF SHARE OF PROFITS
S. 4(c) the receipt of a person of a share of the profits of
business is prima facie evidence that he is partner in the
business .but the receipt of such a share ,or of payment
contingent on or varying with the profits of a business ,does not
of itself make him a partner in the business-

this rule points to the fact that under ordinary circumstances a
person receiving a share of profits is considered as a partner. BUT,
when some other facts are connected to the receipt of such
profits, then it may not be a partnership.

The courts will look at the circumstances surrounding the
receipt of the profit to decide whether or not there is a
partnership.

There are five circumstances pointed out under section 4(c)
where the sharing of profit does not make the person receiving a
partner. They are:


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(i) The receipt by a person of a debt or other liquidated
amount, by installment or otherwise, out of the accruing
profits of a business does not itself make him a partner in
the business or liable as such.

This rule means that if a person lends money to a partnership,
and the debt is repaid to him by instalments over a certain period
of time out of the profits of the business, this does not mean that
he is a partner, and could be made a liable as such:

Badeley v Consolidated Bank (1888)38 Ch.D 238
Plaintiff advanced to C a sum of money for the purpose of
constructing rail transport. C assigned his right to the machinery
and apparatus as security to the plaintiff, and agreed to pay an
interest of 10% on the sum advanced to him from the net profit
which he obtains from the business.
It was held that on looking at the circumstances as a whole, the
advance the plaintiff paid C is considered a secured loan, and
although the plaintiff receives a share of the profits from the
business, he is not considered as partner of C.

RECEIPT OF SHARE OF PROFITS
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ii. A contract for the remuneration of a servant or agent of a
person engaged in a business by a share of the profits of the
business does not make the servant or agent a partner in the
business or liable such as;
This rule allows servants or agent to take part in any project
where they have a share of the profits, but they are not liable
as partners.

Walker v Hirsch (1884)27 Ch.D. 460
The plaintiff, a former clerk of the firm, agreed to advance
1,500 to the firm and that the loan shall be repaid by
payment of a salary 180 and one-eight from the net profits.
The court decided that that in itself did not make him a
partner, thus he had no rights as a partner.

RECEIPT OF SHARE OF PROFITS
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Abdul Gaffor v Mohamad Kassim [1931-32]FMSLR 19
The plaintiff was a servant of the defendant. He had signed
an agreement where he was allocated shares that had been
apportioned between him and the defendant and others. He
claimed that this document proved that he was a partner of
the business, and as such is entitled to a certain share of the
profits. The defendant denied that there was a partnership
and said that the relationship between them and the plaintiff
was that of employer and employee.
It was held by the courts that on true construction of the
facts, there was no partnership. The relationship between
them was that as employer-employee.

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(iii) A person being a widow or child of a deceased partner,
and receiving by way of annuity a portion of the profits
made in the business in which the deceased person was a
partner, is not by reason only of such receipt, a partner in
the business are liable as such.

Commissioners of Inland Revenue v Lebuss Trustees
[1946] 1 All ER 476;
The widow of a partner who inherited one quarter of the share of
the profits was held by the court as not to be a partner in the
business and none of the assets of the partnership belonged to
her.



RECEIPT OF SHARE OF PROFITS
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(iv)The advance of money by way of loan to a person
engaged or about to engage in any business in a
contract with the person that the lender shall receive a
rate of interest varying on the business, does not itself
make the lender a partner with the person or persons
carrying in the business on the business or liable as
such.

This rule is about where a person has advanced money as loan
towards a business. He then enters into a contract either agreeing
that the rate of interest he shall receive will vary as according to the
profit the business receives, or that he will receive a share of the
firms profits. The receipt of the profits in such a case does not make
him a partner of the business. The rule here is qualified by the fact
that the contract must be in writing and signed by or on behalf
of all the parties.



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Re Young, ex p Jones (1896) LT 278
Jones and Young entered into an agreement by which it was provided
that Jones should lend 500 to Young in consideration for the
payment to Jones of 3 per week out of the profits of the business.
Jones was also to assist in the office, to have control of the money
advanced and to be empowered to draw bills of exchange. He also had
the right to enter into a partnership within a period of seven months.
A question arose as to whether Jones was a partner.


It was held that he was not a partner.




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(v) A person, receiving, by way of annuity or otherwise, a
portion of the profits of a business in consideration of the sale
by him of the goodwill of the business is not, by reason only
of such receipt, a partner in the business or liable as such.
Where there had been a sale of a business and its goodwill. It is
followed by an agreement that the consideration for the sale of
the goodwill will be paid out of a portion of the profits that the
business may make. The payment may be in the form of annuity
or something else. The recipient of such payment is thus not liable
as a partner.

Pratt v Strick [1932] 17 T.C 459
A doctor sold his practice to a buyer. They agreed that he will
continue on living at the place of business (a house) for another
three months and introduce all his former patients to the buyer.
All the income received and expenses paid for those three months
will be shared out equally between them.
It was held that the doctor who had sold the practice was not a
partner of the purchaser.
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