BT20403/Topic2

OUTLINE

Business Entities:

Sole Proprietorship

Partnership
Definition
Main characteristics
Relations of partners to one another
Liabilities of partners
Partnership property
Dissolution of partnership

BT20403 COMMERCIAL LAW

TOPIC 2 (1)

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BUSINESS ENTITIES

There are various types of business that are widely

being carried out in Malaysia.

The most common types of business are:

 Sole Proprietorship (Perniagaan Tunggal)
 Partnership (Perkongsian)
 Companies (Syarikat)
 Limited Liability Partnership (Perkongsian
Tanggungan Terhad)

SOLE PROPRIETORSHIP

Sole proprietorship is the earliest form of doing

business and is still the most common form of
business model.

The business is carried out by a person

individually.

The sole proprietorship is the owner of the

business, hence he has total control of the
management and finances of the business.

Sole proprietorships and partnerships

unincorporated associations,
associations, unlike companies.
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Characteristic of Sole
Proprietorship

The sole proprietorship business has no separate

legal personality from the sole proprietor.

The sole proprietor has the right to the profits of

the business since he is solely responsible for the
business.

The liability of the sole proprietor is unlimited

(no separation between personal and business
asset).

If the sole proprietorship dies or becomes

bankrupt, the business comes to an end.
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Formation of Sole
Proprietorship

There

is no formalities to be complied with.

However,

there is a requirement for registration of

the business under the Registration of Business
Act 1956 (except exempted by RBA).

It

is an offence to carry on business if the business is

not registered: s.12(1) RBA.
RBA.

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)
(s.5(1) RBA).
RBA).

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Advantages and Disadvantages

of A Sole Proprietorship

Cont.
Advantages

Advantages

Disadvantages

Easiest and least expensive Raising fund may be more

form of ownership to
difficult compared to other
organize.
forms of business.
Sole proprietors have
complete control, making
decisions as they see fit.

In Malaysia, the law that governs partnership is the

Partnership Act 1961.
1961.

The Act is similar to the English Partnership Act,

1890 and under s.47(1) of the Partnership Act
1961, it provides for the application of the rules of
equity and common law in partnership so long
as they are not inconsistent with the express
provisions of the Act.

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PARTNERSHIP

The partners of a firm must have agreed to carry

on a common business, with the aim of making
profit.

S.6 PA 1961 persons who have entered into

partnership with one another are collectively called
a firm
firm..

Although any kind of business may be conducted

through a partnership, not all business relations
create a partnership.

Definition - S.3(1) of the

Partnership Act 1967

Partnership is the relation which

subsists between persons
carrying on business in common
with a view of profit.
profit.

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...cont

Definition of Partnership

CONT.

A partnership is a type of business carried on by 2

or more persons who are known as partners.

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May have difficulty

attracting high calibre
employees, or those who
are motivated by the
opportunity to own a part
of the business.

Profits from the business

flow through directly to the
owners personal tax
return.
The business is easy to
dissolve or sell, if desired.

Unlimited liability. Since

sole proprietors are legally
responsible for all debts
against the business, their
business and personal
assets are at risk.

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Disadvantages

Sole proprietors receive all

income generated by the
business to keep or
reinvest.

From the definition in s.3

s.3,, we can derive 3 salient
features of partnership:
1. involves a relationship between 2 or more

people;

2. relationship involved is for business purposes,

Soh Hood Beng v Khoo Chye Neo (1897) 4

SSLR 115;

3. profit driven, Aw Yong Wai Choo v Arief

Trading Sdn Bhd (1992) 1 MLJ 166.

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...cont

...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)

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.

Joint tenancy, tenancy in common,

joint property, or part ownership does
not itself for a partnership

Cox v Coulson (1916)

Davis v Davis (1894)

Fromount v Coupland

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...cont

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...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:

S.4(c)

Walker v Hirsch (1884)

3) Payment of an annuity or a portion of

the profits to a widow or child of a
deceased partner in the business.

Cox v Hickman (1860)

Buckingham v Port Jackson &
Manly Steamship Co [1957]

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2) Remuneration to a servant or an agent

of the business from the profit of their
employers business.

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.

I.R.C. v Lebuss Trustees [1946]

Wong Peng Yuen v Senanayake

15

...cont
S.4(c)

14

[1962]

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Main Characteristics

4) Payment of interest which varies with

the profits on a loan advanced for use
in the business under a written
contract.

 A partnership is known as firm

firm ((s.6(1)
s.6(1));
);
 A partnership has no legal personality apart

Re Young [1896]

from the personalities of its members -

Alagappa Chettiar v Coliesum Cafe (1962).

5) Payment to a seller of the good will of

a business in the form of a share of the
profits of the business.

 When a firm is being sued, it is the partners who

are being sued and being made responsible for

the firms debts. When a firm is sued, the 3rd party
may sue the partner by making a claim against
the partnership using the firms name or using all
the individual partners names as defendants.

Pratt v Strick (1932)

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Formation:

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LAW

 In forming a partnership, elements of a

contract have to be fulfilled e.g. agreement,

capacity, intention, consideration, certainty etc. -

William Jacks & Co (Malaya) Ltd. v Chan &

Yong Trading Co. (1964) MLJ 105.

REGISTRATION

LAWFUL
PURPOSE
FORMATION OF
PARTNERSHIP

 The term persons

persons refers to a body of persons

corporate or unun-incorporate. Hence, a

partnership can exist between an individual and
a company, individuals with individuals or
between 2 or more companies.

AGREEMENT

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...cont

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...cont

Capacity:

Persons of legal capacity are capable of

entering into a partnership agreement;

 Goode v Harrison [1821]

[1821]-- it was held that a

minor could be in a partnership for any duration

of time until he wanted to disaffirm it;

 However, a minor cannot incur or be responsible

 Even a minor (under 18 years old) are capable

for any contractual liability for the firms debts.

Upon reaching the age of 18, the minor can, if he
wishes, discharge himself from all future debts by
terminating the p/ship agreement. Failure to
repudiate the agreement makes him liable for the
p/ship debts.

of entering into a partnership agreement -

William Jacks & Co (Malaya) Ltd v Chan &

Yong Trading Co (1964)

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...cont

CAPACITY

22

...cont

Registration of partnership business:

Registration (cont.):

 A partnership business in Peninsular Malaysia

must be registered under the Registration of

Business Act 1956,
1956,
 in Sabah, under the Trade Licensing
Ordinance No 16 1948;
1948; and
 in Sarawak under the Business Names
Ordinance (Cap. 64) and Business,
Professions and Trade Licensing Ordinance
(Cap. 33).
33).

 Although businesses must be registered under

RBA 1956, the fact that a partnership has not

been registered is irrelevant for the purpose of
establishing whether there is a partnership :

 Cases to be referred:

Gulazam

Ratna

 Registration is required to enable the firm to sue

or to enforce 3rd party obligations owed to the

firm.
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v Noorzaman and Sobath [1957]

Amal & Anor v Tan Chow Soo [1964].

 Required to inform changes.

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...cont

...cont
 Ratna Ammal v Tan Chow Soo [1964]:

 Partnership still exist though it is not registered

under the Partnership Act 1961.

1961.

The

parties entered into an agreement to form

a syndicate for the purpose of selling
condensed milk. The word p/ship was not
used in the agreement.

Held:
 From the facts, the relation of the parties had
the business character of a partnership, and
thus, although the word syndicate was used
throughout instead of partnership, the
arrangement arrived at was in fact a
partnership as they had agreed to carry
carry on
business in common with a view of
profit..
profit

 Gulazam v Noorzaman and Sobath [1957]:

Plaintiff

was to provide capital for the purchase

of cattle and the defendants were to look after
and sell the cattle. Plaintiff claimed money due
to him but defence brought by defendants was
that p/ship never existed thus plaintiff had no
recourse for the outstanding amount.

Held:
 Partnership exist although it was not
registered
 Plaintiff claim was allowed.
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...cont

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...cont

Management:

In absence of contrary agreement,

all partners are entitled to share in managing the
firm (s.26(e)).

Contents of the partnership agreement:

 Relationship between partners may be created

orally, in writing or by conduct.

Contractual

authority: A partner is presumed in

law to have authority to enter into contracts on
behalf of the firm in the ordinary course of its
business.
 S.7 - a partner is an agent of the firm and other
partners (express or apparent authority)

 In the absence of any oral or written agreement,

the terms prescribed in the Partnership Act

1961 (s.26) will be applicable.
 Contents of the partnership agreement include
name of the firm, place of business, list of
partners and their contribution, duration (if any),
asset (if any), p/ship account, profit and loss
distribution, methods of dissolution.

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Numbers:

Minimum of 2 partners but not more

than 20 partners except for professional firms which
have no maximum limit on the number of partners
(s.3(1) and s.47(2)).

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...cont

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Sect.2
Business in common

Agreement (binding)
Number of partners

 Liability: A partner is liable for the debts of the

partnership to the full extent of his private estate;

The
relation
between
parties

 Dissolution:

 by the expiration of the agreed period of its

The
agreement
is for
business
purpose

duration

 upon the completion of the particular

undertaking for which the firm was formed

The business is
for purpose of
gaining profit

 death or bankruptcy of any partner

 mutual agreement
 by order of a court

Net profit
Voluntarily not partnership
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BT20403/Topic2

Advantages & Disadvantages of

A Partnership
Advantages

TYPES OF PARTNER

Disadvantages

A partnership is relatively easy to Unlimited liability.

form and the start-up cost is low.
DORMANT/
SLEEPING
PARTNER

ACTIVE
PARTNER

Allows several people to combine

resource and expertise, i.e.
additional investment capital as
well as a wider pool of
knowledge, skills and contracts as
compared with a sole
proprietorship.

The partners are

personally and jointly
responsible or liable for
all debts of the firm.

Limited regulation by authorities. It may be difficult to find

suitable partners.
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Cont.
Advantages

Lack of succession. The

duration of partnership is
uncertain: if any partner dies,
withdraws, sells his interest or
a new partner is admitted into
the business the partnership
comes to an end.

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.

Avril and Lavigne have agreed in writing that both

of them will set up a shop that sells donated goods
and the income will be channelled towards victims
of tsunami in Aceh, Thailand, Malaysia and Sri
Lanka and earthquake in Pakistan and India.

Consider whether partnership exists in these

situations?

Partners can legally bind each

other without prior approval.
Divided authority and the lines
of authority may not be clear.

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The partners are governed by their partnership

agreement.

In the absence of such agreement, the

Partnership Act 1961 will be applicable- S.26

The principle of utmost good faith between

partners is envisaged in these provisions:
 S.30 duty of partners to render accounts etc;
 S.31 accountability for private profits;
 S.32 - duty of a partner not to compete with him
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Relations of Partners to 1
Another

Relations of: (a) partners to 1 another;

(b) firm and partners; and
(c) partners and 3rd parties

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Self Quiz

Disadvantages

Each partner is taxed

individually, meaning that
each partner includes
business income on his
personal income tax
returns.

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S.7- A partner is an agent of the firm and other

partners:
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 of
business of the kind carried on by the firm of
which he is a member bind the firm and his
partners, unless the partners so acting 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 not
know or believe him to be a partner.

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...cont

...cont

The authority of each partner may either be an

actual authority or apparent authority.

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.

 Actual authority (express or implied).

 Express authority may be given in writing (as in

the partnership agreement) or orally

- Chan King Yue v Lee & Wong (1962) (*)
- Osman bin Haji Mohamed Usop v Chan

Held: The borrowing was an act necessary for the

carrying on of the business of the partnership and as
such bound the co-partner.

Kang Swi (1924) (*)

- Sithambaram Chetty v Hong Hing (1924)
- William Jacks & Co (Malaya) Ltd. v Chan &
Yong Trading Co. (1964) (*)

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...cont

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...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.

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William Jacks & Co (Malaya) Ltd v Chan & Yong

Trading Co (1964)
The plaintiff claimed against the defendants the sum,
of RM12,734.91 for goods sold and delivered by the
plaintiff to the defendants. Chan and Yong were sued
as partners of the firm. Yong (a minor) did not take
any steps to defend but Chan raised the following
defences:
1. that no firm by the name of Chan & Yong Trading
Co. ever existed, and that , if such a firm did exist,
he was not a partner thereof;
2. that he did not in any way represented or held
himself out as a partner of the said firm;
3. the goods bought from the plaintiff were for the
personal use of Yong and that the partners were
therefore not liable.

Held: The debt was a firms debt and was obtained for
the purpose of partnership. The partners who signed
the promissory note had acted for the firm and they
were authorized to do so. Therefore, the firm or the 6
partners were liable.
39

...cont

Chan King Yue v Lee & Wong [1962] MJ 379

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40

...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.

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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

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...cont

...cont

Partners are bound by acts done on behalf of firm:

 S.8: An act or instrument relating to the

Partner using credit of firm for private purposes:

 S.9: Where one partner pledges the credit of

business of the firm and done or executed in the

firms name, or in any other manner showing an
intention to bind the firm, by any person thereto
authorized, whether a partner or not, is binding
on the firm and all other partners.

the firm for a purpose apparently not connected

with firms ordinary courses of business, the firm
is not bound, unless he is in fact specially
authorised by other partners; but this section
does not affect any personal liability incurred by
an individual partner.

 Bank of Australasia v Breillat

 Mercantile Credit Co v Garrod

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Liability of Partners

...cont

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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.

 S.10: 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 contravention of the
agreement is binding on the firm with respect to
persons having notice of the agreement.

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The concept of Joint and Severally Liable

Partners liabilities:
 Contractual liability;
 Tortious liability;
 Misapplication of money and/or property;
 Criminal liability.
The above liabilities will be discussed in turn

45

Cont.

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Contractual Liability

S.11:

Every partner in a firm is liable jointly with the

other partners for all debts and obligations of the
firm incurred while he is a partner, and after
his death his estate is also severally liable in
due course of administration for such debts and
obligations so far as they remain unsatisfied
but subject to the prior payment of his separate
debts.

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Liability between firm and partners:

partners:

...cont

JOINT LIABILITY S.11

S.11 deals with partners contractual liability to 3rd

parties:

Plaintiff can opt either to

 While he is a partner, every partner is liable

jointly with the other partners for all debts and

obligations of the firm; and
 After his death, his estate is also severally
liable.

May sue one or more

of the partners
concerned

Sue all the partners

jointly

 Osman Hj Mohamed Usop v Chang Kang

Swi (1924)

Every partner is liable jointly for every conduct of the

firm while he is a member of the firm.

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...cont

...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

Kendall v Hamilton (1897)

A creditor sued all the obvious members of a

partnership and was awarded judgement against
them. He failed to recover the debt in full. He
subsequently discovered a wealthy dormant partner
whom he sought to sue for the balance of the debt.

The House of Lords held that since the debt was a

joint one only, by suing the apparent partners the
creditor elected to sue only them and could not
commence fresh proceedings against the other
partner.

Kendall v Hamilton (1897) (*)

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Tort refers to the breach of a duty imposed by the

law. The law of torts seeks to compensate the
victims of certain forms of harmful conduct by an
award or an injunction which prevents the same
from reoccurring.
Eg. A negligently collides with Bs stationary car on
the road and causes damage to it.
Eg: trespass

For tortious liability to arise, there must be:

a duty of care;

breach of the duty of care;

damage occurs.
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...cont

Tortious Liability

50

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 copartners, 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.

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Section 12

...cont
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

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.

Blyth v Fladyate [1891]

Hamlyn v Houston & Co [1905]

Conditions

In the ordinary course of

business.

If not, the wrongful act

must be committed
while carrying on the
job.

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Liability for Misapplication

of Money or Property S.13

...cont

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,

co-partners and also severally for everything

for which the firm while he is a partner therein
becomes liable under s.12 or s.13.

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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

Criminal liability is a personal liability of partners

who have committed it, its requires mens rea.

58

Liability for improper

employment of trust property
for partnership purpose

Partners are only jointly liable in civil cases, they

are not jointly liable in criminal cases.

This means that if the partnership firm is liable for

wrongs under s.12 or to liable to make good the
loss due to misapplication of money or property
under s.13, the plaintiff can sue all the
partners jointly or may even sue 1 or more
of the partners concerned.

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Criminal Liability

Liability for wrongs joint and several:

 S.14: Every partner is liable jointly with his

the firm is liable to make good the loss.

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The above rule is clearly envisaged in the case

of Chung Shin Kian & Anor v Public
Prosecutor [1980] 2 MLJ 246

Garrett v Hooper [1973]

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Liability of Persons for Holding

Out

...cont

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 firmname, 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.

The liability is based on the principle of estoppel.

When a person makes a representation that induces

3rd party to believe and rely on such representation
that he is a partner, the person is estopped from
denying or contradicting the statement.

In Re Buchanan & Co. (1876), it was held that if

the holding out or representation is made without
the knowledge or consent from the real partner,
only the person holding out as a partner shall be
liable to the third party acting in reliance of the
representation.

William Jacks & Co (Malaya) Ltd v Chan &

Yong Trading Co. [1964]
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Liability of Outgoing Partners

(Retiring)

Retiring partner may still liable unless he gave

notice that he is no longer a partner.

S.38(1) - Where a person deals with a firm after

a change in its constitution, he is entitled to treat
all apparent members of the old firm as still being
members of the firm until he has notice of the
change.

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...cont

Re Siew Inn Steamship Co [1934] MLJ 180

The court held that the retired partner was liable on
the promissory notes for money lent to the firm.
Actual notice was necessary as far as old or
existing customers were concerned. Notices on the
retirement of the plaintiff in 3 Chinese newspapers
were insufficient and ineffective notice to those who
had dealings with the firm that he was no longer a
partner. The effectiveness of such notice depends on
to whom the notice is made.

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...cont

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64

...cont

2 parties considered to have dealings with firm are:

For unknown person who has no previous dealing
with the firm before the change in the firms
constitution, a notice in a national gazette is
sufficient and effective that the partner is no
longer a partner in that firm.

For those who have previous dealings with the
firm, a more specific and clear notice is required
(as held in Hup Aik Tin Mining Co v Kam Hoy
Trading (1969) MLJ).

S.19(2) : A partner who retires from a firm does

not thereby cease to be liable for partnership debts
or obligations incurred before his retirement.

S.19(3) : A retiring partner may be discharged

from any existing liabilities by an agreement to the
effect between himself and the members of the
firms as newly constituted and the creditors, and
this agreement may be either express or inferred
as a fact from the course of dealing between the
creditors and the firms as newly constituted.

Tan Sin Moh v Lebel Ltd [1988] 2 MLJ 51

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BT20403/Topic2

Liability of incoming partners

(new)

...cont

Malayan Banking Bhd v Lim Chee Leng &

Anor (1985) 1 MLJ 214: The respondents were

held to be liable for the debts incurred before they

retire or resign. In this case the respondents had
incurred the debt on the trust receipt before their
resignations or retirement and they could not
escape liability by merely pleading resignation or
retirement.

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A person who is admitted as a partner into an

existing firm does not thereby become liable to the
creditors of the firm for anything done before he
became partner.

67

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.

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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.

2.Indemnity - S.26(b)

3. Interest on extra
capital subscribed
- S.26(c)

4.Interst on capital
subscribed - S.26(d)

The principle of utmost good faith between

partners are implicit in every partnership
agreement and is a prime requisite in relations
between partners.

This is because the relationship between partners

is based on mutual trust and confidence.

RIGHTS
BETWEEN
PARTNERS

6. Remuneration S.26(f)

7. Introduction of new
partner - S.26(g)

8. Differences as to
ordinary matters S.26(h)

9. Partnership book
S.26(i)

10. Expulsion of partner

- S.27

69

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70

Cont.

Fiduciary Duties of Partners

68

1.Capital, profit & loss

- S.26(a)

5. Management of
business - S.26(e)

 S. 21 PA:

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General rule: a new partner is not liable for the

debts incurred prior to his admission, refer
s.19(1):

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).
 Maddeford v Austwick [1826] It was held

that the sale and purchase transaction of a share

in the firm without disclosure of material facts
on the partnership assets was voidable.

The relevant provisions in the Partnership Act

pertaining to this are s.31, s.32 and s.33.

 Law v Law [1905]

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Cont.

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.

 Bentley v Craven [1853] The court held that

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.
 Green v Howell [1910]

a partner cannot make a profit from a resale of

any property owned by him to the firm without
full disclosure to the other partners

 Aas v Benham [1891]

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73

Cont.

74

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.

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.

Ong Keng Huat v Hong Kong United Co Ltd

 The Court held that: Other partners had no right

[1961] 27 MLJ 36.

to claim for the benefit since the ship building

business was of different nature from the shipbrokerage business.

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Partnership Property

...cont

S.22(1): Partnership property is defined as:

All property and rights and interests in property
originally brought into the partnership stock or
acquired, whether by purchase or otherwise on
account of the firm or for the purposes and in the
course of the partnership business, and must be
held and applied by the partners exclusively for the
purposes of the partnership and in accordance with
the partnership agreement.

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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

Wray v Wray [1905]

Ponnukon v Jebaratnam [1980] 1 MLJ 282

77

S.24: In the absence of an agreement to the

contrary, the property of the partnership has to be
sold on dissolution of partnership.

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Dissolution

cont

Several ways in which a partnership is dissolved:

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 )

1. By agreement:
a. Upon the expiry of specific duration (if any)
b. Mutually agreed by the partners

 s.35(2): by charging his shares, dissolution

at the option of other partners

2. By operation of law (s.34);

a. by the expiration of the term fixed, or
b. by the termination of an adventure or

4. By supervening illegality (s.36);

undertaking, or
c. by any partner giving notice to the other of
his intention to dissolve the partnership
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...cont

80

...cont

5. By Court order (s.37): The court may order the

d. Where a partner, wilfully or persistently

dissolution of the partnership, on application by a

partner:-

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;

a. Insanity of a partner;
b. Permanent incapability of performing his

e. When the business of the partnership can

contractual obligations;

only be carried on at a loss; or

c. The partner will affect prejudicially the

f. It is just and equitable in the courts opinion

carrying on of the business

to dissolve the partnership.

Re Yenidje Tobacco Co. Ltd. (1916)

Charmichael v Evans [1904];

Clifford v Timms [1908] AC 12
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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

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