Professional Documents
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TOPIC 2 (1)
OUTLINE
Business Entities:
Sole Proprietorship
Partnership
Definition
Main characteristics
Relations of partners to one another
Liabilities of partners
Partnership property
Dissolution of partnership
BT20403/Topic2 (1) 2
BUSINESS ENTITIES
There are various types of business that are
widely being carried out in Malaysia.
BT20403/Topic2 (1) 3
SOLE
PROPRIETORSHIP
Sole proprietorship is the earliest form of
doing business and is still the most common
form of business model.
BT20403/Topic2 (1) 4
Characteristic of Sole
Proprietorship
The sole proprietorship business has no separate
legal personality from the sole proprietor.
BT20403/Topic2 (1) 5
Formation of Sole
Proprietorship
There is no formalities to be complied with.
BT20403/Topic2 (1) 6
Formation of Sole
Proprietorship
The person responsible for a business shall,
not later than 30 from the date of the
commencement of the business, apply to the
Registrar for the registration of the business
(s.5(1) RBA).
BT20403/Topic2 (1) 7
Advantages and
Disadvantages of a Sole
Proprietorship
Advantages Disadvantages
Easiest and least Raising fund may be
expensive form of more difficult compared
ownership to organize. to other forms of
business.
BT20403/Topic2 (1) 11
Definition of
Partnership
Definition - S.3(1) of the
Partnership Act 1967
BT20403/Topic2 (1) 12
...cont
From the definition in s.3, we can derive 3
salient features of partnership:
BT20403/Topic2 (1) 13
...cont
Where a partnership agreement does not
exist, s.4 provides a number of tests in
determining the existence of a partnership:
S.4(a) Joint tenancy, tenancy in
common, joint property, or part
ownership does not itself form a
partnership
Davis v Davis (1894)
Fromount v Coupland
BT20403/Topic2 (1) 14
...cont
S.4(b) The sharing of gross returns does
not itself establish a partnership,
whether the parties who share the
returns have or do not have a joint
right or interest in the property
from which or from the use of
which the returns are derived.
Cox v Coulson (1916)
BT20403/Topic2 (1) 15
...cont
S.4(c) Sharing of business profit by a
person is a prima facie evidence of
partnership. However, the
presumption may be rebutted if the
sharing is for some other reasons:
1)Payment of a debt out of profits of
the business to a creditor by
instalments does not make the
creditor a partner in the business.
BT20403/Topic2 (1) 16
...cont
S.4(c) 2) Remuneration to a servant or an
agent of the business from the
profit of their employers business.
3) Payment of an annuity or a
portion of the profits to a widow or
child of a deceased partner in the
business.
Re Young [1896]
BT20403/Topic2 (1) 18
Main Characteristics
Formation:
A partnership is known as firm (s.6(1));
BT20403/Topic2 (1) 20
BT20403/Topic2 (1) 21
...cont
Capacity:
Persons of legal capacity are capable
of entering into a partnership
agreement;
Even a minor (under 18 years old) are
capable of entering into a partnership
agreement - William Jacks & Co
(Malaya) Ltd v Chan & Yong Trading
Co (1964)
BT20403/Topic2 (1) 22
...cont
Goode v Harrison [1821]- it was held that a
minor could be in a partnership for any
duration of time until he wanted to disaffirm
it;
BT20403/Topic2 (1) 23
...cont
Registration of partnership business:
A partnership business in Peninsular Malaysia
must be registered under the Registration
of Business Act 1956,
in Sabah, under the Trade Licensing
Ordinance No 16 1948; and
in Sarawak under the Business Names
Ordinance (Cap. 64) and Business,
Professions and Trade Licensing
Ordinance (Cap. 33).
BT20403/Topic2 (1) 24
...cont
Registration (cont.):
Cases to be referred:
Gulazam v Noorzaman and Sobath [1957]
Ratna Amal & Anor v Tan Chow Soo
[1964].
BT20403/Topic2 (1) 27
...cont
Contents of the partnership
agreement:
Dissolution:
by the expiration of the agreed period of
its duration
upon the completion of the particular
undertaking for which the firm was formed
death or bankruptcy of any partner
mutual agreement
by order of a court
BT20403/Topic2 (1) 30
Sect.2
Agreement (binding)
Business in common
Number of partners
Net profit
Voluntarily not partnership
BT20403/Topic2 (1) 31
TYPES OF PARTNER
DORMANT/
ACTIVE
SLEEPING
PARTNER
PARTNER
BT20403/Topic2 (1) 32
Advantages &
Disadvantages of A
Partnership
Advantages Disadvantages
A partnership is relatively Unlimited liability.
easy to form and the start-up
cost is low.
Allows several people to The partners are
combine resource and personally and jointly
expertise, i.e. additional responsible or liable
investment capital as well as for all debts of the
a wider pool of knowledge, firm.
skills and contracts as
compared with a sole
proprietorship.
BT20403/Topic2 (1) 34
Self Quiz
Vince, Felix, Mawi and Marsha are good
friends. They have finally agreed that each of
them will contribute RM1,000 per month so
that each of them can start their business.
BT20403/Topic2 (1) 36
Relations of Partners to 1
Another
S.7- A partner is an agent of the firm and
other partners:
BT20403/Topic2 (1) 37
...cont
The authority of each partner may either be an
actual authority or apparent authority.
BT20403/Topic2 (1) 38
...cont
Chan King Yue v Lee & Wong [1962] MJ 379
Plaintiffs husband borrowed from her RM35,000
as a loan from her to the firm in which he is a
partner. He gave her a receipt in the name of
the partnership. The money was paid into the
partnerships account and immediately utilized
by the firm to pay off some debts. Plaintiff sued
for the recovery of the loan.
BT20403/Topic2 (1) 39
...cont
Osman b Haji Mohamed Usop v Chang Kang
Swi (1924) 4 FMSLR 292
A partnership has been formed by 6 partners
including the appellant. 3 of the partners borrowed
RM10,000 from a 3rd party by effecting a promissory
note. The loan was guaranteed by the respondent
(Chan Kang Swi). Later, the firm failed to pay the
debt and Chan was called to pay for the debt on his
own account. He then initiated action against the 6
partners for recovery of his money and 5 partners
accepted their liability, except the appellant.
BT20403/Topic2 (1) 41
...cont
The court held:
Chan was a partner of Chan & Yong Trading;
Chan represented himself to be partner in
the firm by approaching a salesman of the
plaintiff to ask for credit facilities with the
plaintiff company by registering the
partnership with the ROB, and by opening a
banking account with his own money in the
name of the partnership.
The fact that Yong made use of the goods
bought from the plaintiff for his own purpose
did not mean that the partnership and
partners were not liable.
BT20403/Topic2 (1) 42
...cont
Apparent authority (or ostensible
authority):
When a partner (who does not have the
authority) holds out that he has such
authority, or a person holds out that he is
a partner and the other partners knew
about it yet do nothing to stop it, hence
the partners are liable.
Garland v Jacomb
Kendal v Wood
BT20403/Topic2 (1) 43
...cont
Partners are bound by acts done on behalf
of firm:
BT20403/Topic2 (1) 44
...cont
Partner using credit of firm for private purposes:
BT20403/Topic2 (1) 45
...cont
Effect of notice that firm will not be bound by
acts of partner - If the 3rd party has notice of the
agreement between the partners (restricting the
power of any one or more of them of them to
bind the firm) then the firm will not be bound in
respect of any act done in contravention of the
agreement.
BT20403/Topic2 (1) 46
Liability of Partners
The concept of Joint and Severally Liable
Partners liabilities:
Contractual liability;
Tortious liability;
Misapplication of money and/or property;
Criminal liability.
BT20403/Topic2 (1) 47
Cont.
BT20403/Topic2 (1) 48
Contractual Liability
S.11:
BT20403/Topic2 (1) 49
...cont
S.11 deals with partners contractual
liability to 3rd parties:
BT20403/Topic2 (1) 50
Liability between firm and
partners:
BT20403/Topic2 (1) 51
...cont
For example: if Mr. X, Mr. Y and Mr. Z are
partners in the firm named XYZ Enterprise
the legal entity may be described as Mr. X,
Mr. Y and Mr. Z trading as XYZ Enterprise.
BT20403/Topic2 (1) 52
...cont
Kendall v Hamilton (1897)
BT20403/Topic2 (1) 54
...cont
S.12:
Where, by any wrongful act or omission
of any partner acting in the ordinary course
of the business of the firm or with the
authority of his co-partners, loss or injury
is caused to any person not being a
partner in the firm, or any penalty is
incurred, the firm is liable to the same extent
as the partner so acting or omitting to act.
BT20403/Topic2 (1) 55
Section 12
Conditions
BT20403/Topic2 (1) 56
...cont
In order to make a firm liable, the tortious
act must be committed by a partner either
in the ordinary course of the business
of the firm or with the authority of his
co-partners.
BT20403/Topic2 (1) 57
Liability for
Misapplication of Money
or Property S.13
In the following cases, namely:
(a) Where one partner, acting within the scope
of his apparent authority receives the
money or property of a third person and
misapplies it; and
(b) Where a firm in the course of its business
receives the money or property of a third
person, and the money or property so
received is misapplied by one or more of
the partners while it is the custody of the
firm,
BT20403/Topic2 (1) 58
...cont
Liability for wrongs joint and several:
BT20403/Topic2 (1) 59
Criminal Liability
Partners are only jointly liable in civil cases,
they are not jointly liable in criminal cases .
BT20403/Topic2 (1) 60
Liability for improper
employment of trust
property for partnership
purpose
S.15: If a partner being a trustee, and
employs trust property in the business, no
other partner is liable for the trust property
to the beneficiaries for the breach of trust.
The other partner can be sued if they have
notice of the breach of trust. If the property
still in the firms possession, the
beneficiaries can recover it.
Ex Parte Heaton
BT20403/Topic2 (1) 61
Liability of Persons for
Holding Out
S.16: either by: - words spoken or written; or
- conduct; or
- who knowingly suffers himself,
liable as a partner to anyone who has on the
faith of any such representation
Proviso: where after a partners death, the
partnership business is continued in the old
firm-name, the continued use of that name or
of the deceased partners name as part thereof
shall not of itself make his executors or
administrators estate or effects liable for any
partnerships debt contracted after his death.
William Jacks & Co (Malaya) Ltd v Chan &
Yong Trading Co. [1964]
BT20403/Topic2 (1) 62
...cont
The liability is based on the principle of
estoppel.
BT20403/Topic2 (1) 64
...cont
Re Siew Inn Steamship Co [1934] MLJ 180
BT20403/Topic2 (1) 68
Liability of incoming
partners (new)
General rule: a new partner is not liable for
the debts incurred prior to his admission,
refer s.19(1):
BT20403/Topic2 (1) 69
RIGHTS & DUTIES OF
PARTNERS
Right and duties of partners to one another are
governed by the terms under partnership
agreement.
In the absence of the provisions in the partnership
agreement, the Partnership Act (PA) will apply.
S. 21 PA:
The mutual rights and duties of partners, whether
ascertained by agreement or defined by this Act,
may be varied by the consent of all the partners,
and such consent may be either express or
inferred from a course of dealing.
BT20403/Topic2 (1) 70
1.Capital, profit & loss
- S.26(a) 2.Indemnity - S.26(b)
RIGHTS
5. Management of BETWEEN 6. Remuneration -
business - S.26(e) PARTNERS S.26(f)
BT20403/Topic2 (1) 71
Fiduciary Duties of
Partners
The principle of utmost good faith
between partners are implicit in every
partnership agreement and is a prime
requisite in relations between partners.
BT20403/Topic2 (1) 72
Cont.
S.30: Duty of partners to render true
accounts.
Partners are bound to render true accounts
and full information of all things affecting the
partnership to his co-partner(s).
BT20403/Topic2 (1) 73
Cont.
S.31: Accountability of partners for private
profit.
Every partner must account to the firm for any
benefit derived by him, without the consent of
the other partners, from any transaction
concerning the partnership.
BT20403/Topic2 (1) 74
Cont.
S.32: Duty of partner not to compete with
firm.
If a partner, without the consent of the other
partners, carries on business of the same
nature as and competing with that of the
firm, he must account for and pay over to
the firm all profits made by him in that
business.
BT20403/Topic2 (1) 75
Cont.
Ass v Benham [1891] - A partner in a ship-
brokerage firm assisted in the incorporation
of a ship building company using
information he obtained from the firm's
business. He was then appointed as a
director in the said company and received a
salary in consideration for the services he
rendered. Other partners claimed for the
benefit to be given to the firm.
BT20403/Topic2 (1) 76
Cont.
If there is a breach of duty committed by a
partner, he is only liable to make good the
loss suffered by the partnership if he is
guilty of fraud or culpable negligence
or willful default.
BT20403/Topic2 (1) 77
Partnership Property
S.22(1): Partnership property is defined as:
BT20403/Topic2 (1) 78
...cont
Any property which is purchased out of
partnership asset is regarded as partnership
property though it is not used for carrying
out the partnership business - s.23
BT20403/Topic2 (1) 79
Dissolution
Several ways in which a partnership is dissolved:
1. By agreement:
a. Upon the expiry of specific duration (if
any)
b. Mutually agreed by the partners
BT20403/Topic2 (1) 80
cont
3. By death or bankruptcy (s.35);
s.35(1): death or bankruptcy of any
partner;
(see Lee Choo Yam Holdings Sdn.
Bhd. v Khoo Yoke Wah & Ors )
BT20403/Topic2 (1) 81
...cont
5. By Court order (s.37): The court may order
the dissolution of the partnership, on
application by a partner:-
a. Insanity of a partner;
BT20403/Topic2 (1) 82
...cont
d. Where a partner, wilfully or persistently
commits a breach of partnership or
otherwise so conducts himself in matters
relating to partnership business- not
reasonably practicable for others to carry
on the business with him;
BT20403/Topic2 (1) 83
Consequences of
Dissolution
Right to notify outsiders, s.38
Right of a partner to give public notice of
retirement or dissolution, s.39
Refer cases:
Re Chop Yew Seong
Tan Siin Moh v Lebel Ltd [1988] 2 MLJ
51
Jemco Sdn Bhd v Andrew Liau Ka
Lieng & Ors [1985] 2 MLJ 119
BT20403/Topic2 (1) 84