~MEANING AND NATURE OF PARTNERSHIP~

Meaning and Nature of Partnership

Partnership is defined by Section 3(1) of the Partnership Act 1961 as ‘ the relation, which subsists between persons carrying on a business in common with a view of profit’. 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 society under any written law relating to co-operative societies or

b) formed or incorporated by or in pursuance of-

i) 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 Kingdom.

Clubs and societies as well as mutual benefit organizations and building societies 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 ambit of partnership. By virtue of Section 47(2) of the Act there cannot be an association of more than twenty persons formed or carrying on business in partnership. 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 also 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. as 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 limited 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 some goods from Specier’s for the business. They also opened a bank account in the name of the company. The company was eventually formed but not bound by the contract which B had made because it was not in existence at the time.

B went bankrupt before Spicer’s had been paid. So rather than prove in a bankrupt, Spicer sued M on the basis that he was a partner of B. Held. B and M were not partners. They were not carrying business together in partnership. They were preparing to carry on a business as a company as soon 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 liability while the human person has not. The members should be 2 till 20 persons for ordinary firm while 2 till 50 for professional fir.

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. The transaction or business will be count as partnership which make in present and continuous, nor in past neither in future.

4. Business as defined in Section 2 of Partnership Act as "any trade,occupation or profession". Means that any trade,occupation or profession which can get a profit can be consider as a business in partnership.

5. In common means that a partner must act on by or behalf of the firm or the partner

6. With a view of profit means they must have the objective to achieve or get or gain the net profit during their partnership.

According to Sir Montague Smith in Mollowo, March & Co v Court of Wards (1872) LR 4 PC 419 at 436, “to constitute a partnership the parties must have agreed to carry on business, or to share profit in some way common. Thus in a partnership, 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 the 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 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.”

Firm and Firm Name

Persons entering into partnership with one another are, for the purpose of Partnership 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 partnership does not have to be created by a formal deed. For example, two individuals, who have started a business in retailing in pursuance to an agreement to become partners, will be considered by law to be partners until the conclusion of the partnership agreement.

A partnership business must be registered under the appropriate law, depending on 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 of 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.

In both English and Malaysian law, a firm has no legal existence distinct from its members . It has no legal entity. In Alagappa Chettiar v Coliseum Café [1962] MLJ 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 Nos 98, 100 and 102 Batu Road. The present appellant brought an action in the Sessions Court for recovery of possession of his premises No 102 and for mesne profits. The learned President was of the opinion that the defendant firm though registered as a business had not the power to become tenants as so constituted and he 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 subject matter at the trial is less than five hundred dollars” there was no right of appeal 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 firm 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 Café, although registered as a business, had no power to become tenants as so constituted, his Lordship went on to say that ‘ a single individual can be a tenant, and equally can eight partners be joint tenant’. ‘ Coliseum Café or Hotel, as such is not a legal persona, but a label used by a number of individuals trading in partnership under one name.

Held:

(1) the profits claimed must be taken into account in determining whether the amount 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 preliminary objection rested;

(3) the letting in this case created the relationship of landlord on the one hand 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 virtue of s 206(g) and (j) of the Contracts (Malay States) Ordinance, 1950, had continued de jure to assume obligations and enjoy benefits of the tenancy. This followed from the fact that when the tenancy agreement was made no reliance was placed upon the “personnel of the Partners