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LAW OF PARTNERSHIP
NATURE
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Historical Background
Common forms of business organization.
Govern by the Partnership Act 1961(Revised
1974)(PA)
Before enactment of PA, matters relating to
partnership in
a. the FMS were dealt with using PX
Contracts Ordinance 1950
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b. Penang and Malacca English partnership
Act 1890 by virtue of Sec.5(2) CLA 1956.
c. Sabah Partnership Ord.1961
d. Sarawak Partnership Ord. Cap. 67.
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1974, Partnership Act 1961 (Revised 1974) came
into force.
It was modeled after Sabah Act with several
modification.
Much similar to the English Partnership Act 1890.
From then onwards, applicable to the whole of
Malaysia.
Consists of 47 sections.
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DEFINITION
Sec. 3(1)
is the relation which subsists between
persons carrying on a business in common
with a view of profit.
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Sec. 3(2)
The relation between members of any
company or association which is;
(a) Registered as a company under the
Companies Act 1965 or as a co-operative
society under any law relating to co-
operative societies; or

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(a) Formed or incorporated by or pursuance of;
(i) any other laws having effect in Malaysia
or any part thereof; or
(ii) any letters patent, Royal Charter or Act
of Parliament of United kingdom,
Is not a partnership within the meaning of
this Act


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Elements/keywords
Relation
implies the existence of an agreement
between persons.
there is a binding contract between the
persons involved.
may express or implied.
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Persons
Partnership consist of more than one
member.
Sec. 14(3) Co. Act 1965 limit an ordinary
partnership to 20 whereas professional firms
which cannot be incorporated under the Co.
Act 1965 has no limit.
Sec. 47(2) Partnership Act 1961 does not
allow more than 20 persons.

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Tan Teck Hee v. Cheng Tian Peng (1915) 2
FMSLR161- a firm with 25 persons could not take
legal action in court, as it was not a valid partbership.
Tan Ching Cheang v. Estate & Trust Agency
(1926) Ltd [1932] FMSLR 129 the original
membership of more than 20 was trimmed down
before beginning a legal action. Court still did not
recognised.initial invalidity still remained.

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Shim Fatt v. Leila Bus Road Co. (1959)
SCR 3,
the court decided that the plaintiff could not
claim their money back from the firm that had
more than 20 members, because legal action
could not be taken against a firm that was not
valid at law.

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BUSINESS
SEC. 2 PA 1961
includes every trade, occupation or
profession

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Custom and Excise v. Lord Fisher (1981)
AER 262 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

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Soh Hood Beng v. Khoo Chye Neo (1897)
4 SSLR the court held that the efforts of
several persons making individual
contributions to establish a loan society with
the purpose of lending money to its members
in turns cannot be considered as a business.

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Brett J. in Smith v. Anderson (1880) 15 Ch D
247, had amongst others said that the words
carrying on a business means to do an act
repeatedly
An association that is established to carry out
a single act that will not be repeated does not
come within this meaning
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The words carrying on a business
denotes present tense. This implies that the
business must be existing.
No partnership can be construed where
persons concerned were merely preparing to
carry on business as a company as soon as
they could - Keith Spicer Ltd v. Mansell
(1970) 1AER 462
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Chooi Siew Cheong v. Lucky Height
Development Sdn. Bhd (1995) 1 MLJ 513
It was held that no partnership resulted from
a joint venture agreement between a
landowner and a housing developer because
each party to the agreement intended a
wholly separate business, there was no
business in common.
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In Common
Means by or on behalf of both or all the
partners
Even where there is sharing of profits out of a
business, it is not a partnership unless the
business is carried on by or on behalf of all
the partners.
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With a view of profit
Profit is not statutorily defined
An acceptable meaning was given by
Fletcher Moulton LJ in
Re Spanish Prospecting Co. Ltd (1911) 1
Ch 92
Soh Hood Beng v. Khoo Chye Neo
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Rules for determining the existence of
a partnership
sec. 3(1) gives a general definition.
Whether a partnership exist or not will
depend on whether sec.3(1) has been
fulfilled.
The general definition is followed by sec. 4
which specifically sets out rules to determine
certain relationships that do not constitute a
partnership
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The rules in sec. 4 are not exhaustive. In
determining the issue, the circumstances
surrounding the relationship, including any
written or verbal agreement and the conduct
of the parties will have to be taken into
consideration
Aw Yong Choo v. Arief Trading Sdn Bhd &
Anor (1991) 1 MLJ 166
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Sec.4(a)
joint tenancy, tenancy in common, joint
property or part ownership does not 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;
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s.4(a)
joint and common means two or more
persons are involved in the holding of a
property. This rule means that a partnership
does not exist just because any property that
is held or owned jointly or commonly is used
and out of that use of the property , there is
profit. This is regardless of whether such
profit obtained is divided amongst the co-
owners or tenants or not.
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sec. 4(a)
Davis v. Davis (1894) 70 LT 265
French v. Styring (1857) N.S. 357
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Sec.4(b) Sharing of Gross Returns
the sharing of gross returns does not of 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
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sec 4(b)
this rule merely means that just because a
person receives a part of gross returns, it
does not make him a partner.
Cox v. Culson (1916) 2 KB 177
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Sec. 4(c)- receipt share of profit
the receipt of a person of the share of the
profits of business is prima facie that he is a
partner in the business, but the receipt of
such a share, or of a payment contingent on
or varying with the profits of a business, does
not of itself make him a partner in the
business.
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5 circumstances
Sec. 4(c)(i)
the receipt by a person of a debt or other
liquidated amount, by installments or
otherwise, out of the accruing profits of a
business does not of itself make him a
partner in the business or liable as such.
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Means that if a person lends money to a
partnership, and receives payment of the
debt by installments 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 liable as such.
Badeley v. Consolidated Bank (1888) 38
Ch. D 238
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Sec. 4(c)(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 as such;
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This rule allows servants or agents take part
in any project where they have a share of the
profit, but they are not liable as partners.
Walker v. Hirsch (1884) 27 Ch. D 460
Abdul Gaffoor v. Mohamed Kassim (1931-
32)FMSLR
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Sec. 4(c)(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.
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It is a practice to agree to make yearly
payment called an annuity to the widow or
child of a deceased partner. The payment is
made out of the profits that the firms earns.
The widow or child who receives such
payment cannot be liable as a partner
Commissioners of Inland Revenue v.
Lebuss Trustees (1946) 1 AER 476
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Sec.4(c)(iv)
The advance of money by way of loan to a
person engaged or about to engage in any
business in a contract with that person that
the lender shall receives a rate of interest
varying with the profits, or shall receive a
share of the profits, arising from carrying on
the business, does not by itself make the
lender a partner with the person or persons
carrying on the business or liable as such
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This rule is about where a person has
advanced money as a 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.- in this
case he is not a partner.
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The rule here is qualified by the fact that the
contract must be in writing and signed by or
on behalf of all parties.
In Re Young, ex p J ones (1896) 75 LT 278
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Sec.4(c)(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.
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Is based on the fact that 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 the portion of the profits that
the business may make.
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The payment maybe in the form of annuity or
something else. The recipient of such
payment is thus not liable as partner.
Pratt v. Strick (1932) 17 . 459