THE PARTNERSHIP AGREEMENT

Parties to the Agreement

Nature of Business and Place of Business
Firm Name
Duration of Partnership
Provision of Capital
Division of Capital and Profits
Partnership Property
Management of the Business
Methods of Dissolving a Partnership
Change on the Firm
Expulsion of Members
Restriction on Competing

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PARTIES TO THE AGREEMENT

It is important to clearly spell out who are the
parties regarded as partners to establish their
right and liabilities. (s. 26), although there are
circumstances where a person who has not
been named as one could be made liable as if
he was a partner.

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NATURE OF BUSINESS AND PLACE OF BUSINESS

The nature of the partnership business should
be stated because it is only that particular
business which the partners agree to carry on.
It is with regard to this business only where
each partner is regarded as an agent of the
firm and can bind the other partners. The
usual place of business should also be clearly
stated, and according to S. 26(i) it is where the
partnership books should be kept.

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FIRM NAME

S.6 provides:
Person who has entered into partnership with one another is, for the
purpose of this Act, called collectively a firm, and the name under which
their business is carried is called firm-name.
Partners have a choice of trading either under a combination of their own
names or any trade name
If a trade name is chosen, then a registration fee of RM50.00 will have to
be paid under the Registration of Businesses Act, 1956.
Although the partners are collectively called a firm, it is important
to note that the law does not consider the firm a legal personality
of its own like other incorporated bodies or associations. The firm is
not a separate personality from the individual members of the
partnership as was appointed out in Alagappa Chettiar v Coliseum
Caf [1962] MLJ 111 where the Court of Appeal said that as
partnership is not a separate legal entity it cannot hold a tenancy.
However the firm-name can be used in official correspondence,
legal documents and the court rules allow the firm-name to be
used in any legal actions.


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DURATION OF PARTNERSHIP

A partnership established without a fixed term is
under S.28(1) considered as a partnership at will.
The disadvantages of a partnership at will are
that any partner may determine the partnership
at any time on giving notice of his intention to do
so to all the other partners. This uncertainty
could be avoided by agreeing upon a fixed term.
Clearly stating the date on which the partnership
is to commence and for its duration. The
partnership may, however, to be continued after
the expiration of the agreed term.

6
PROVISION OF CAPITAL

The amount of partnership capital should be
clearly stated according to its financial value, and
this includes the proportion that each partner
contributes to the capital, whether in cash or
kind. Where the partners have agreed to
contribute equally to the capital, but at the
beginning one of the partners has to contribute
more to make up for another partners inability
to come up with the agreed amount, that
advance is to be regarded as a loan to the
partnership, for which he is entitled to be paid
interest. S. 26(c)

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DIVISION OF CAPITAL AND PROFITS

It is important to agree to the division of
capital and profits between the partners,
especially on or after dissolution, because
without any contrary agreement, S. 26(a)
allows for an equal share to capital and profits
to all the partners irrespective of their
contribution.

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PARTNERSHIP PROPERTY

To avoid problems which normally occur in
many partnerships on the question of
ownership of property, it is in the best interest
of all parties to clearly establish rules to
identify which of the assets are to be regarded
as partnership property. See ss. 22, 23 & 24.

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MANAGEMENT OF THE BUSINESS

To ensure that only those with the relevant skills
and experience manage the partnership business,
there must be a provision for it in the articles of
partnership. If there is no written provision,
every partner may take part in the
management of the partnership business
since it is allowed by S.26(e). To lessen the
problem in the management of the business, it is
also useful to set out clearly the limit of each
partners powers, especially in entering into
contract, or giving credit.

10
METHODS OF DISSOLVING A PARTNERSHIP

It is desirable to provide for methods of dissolving
a partnership, as the absence of such a provision
would mean that the partnership is subjected to
the provision of Part V of the Partnership Act
1961. According to S.35(1), the death or
bankruptcy of any partner will cause a
partnership to be dissolved. As this provision may
have an adverse effect on active and successful
business, it is thus advisable to provide for the
continuation of the firm by the other partners, in
the event of death or bankruptcy.

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CHANGE IN THE FIRM
As the agreements of all partners are
required for the introduction of a new member
according to S.26(g), it is necessary to make
provision for a retiring partner, or the agent of
a deceased partner to appoint another as a
new partner without this unanimous decision.


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EXPULSION OF MEMBERS

If there is no provision to the contrary, S.27
provides that a partner may not be expelled
from the partnership, even if a majority wants
him to leave. To avoid the effect of this
provision, it is necessary to expressly state the
power of expulsion, not only by the majority,
but also on other grounds.

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RESTRICTION ON COMPETING

According to S.32 a partner may not enter into
any business that competes with that other firm.
To enable a partner to involve himself in business
that may compete with that other firm, provision
must then be made for that. As there is nothing
to prevent a retired partner from entering into
competing business, it may be advisable to make
certain conditions relating to that. However, such
restriction is subjected to the same rules as to
restraint of trade.

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ADVANTAGES OF A WRITTEN
AGREEMENT

Where there is no written agreement to the contrary, the provisions
contained in Part IV and V of the Partnership Act is applicable to a
partnership. Some of the rules are not suitable for a partnership; e.g.
The existence of a partnership at will where any of the partners can give
notice to dissolve a partnership, even if its business is thriving.
The dissolution of a partnership upon the death or the bankruptcy of a
partner unless it had been agreed between the partners, the death or
bankruptcy of any of the partners will bring the partnership to an end,
even where the partnership is actively carrying on a successful business.
Rights and liabilities over partnership property may create a problem
where partners do not contribute to the shares equally.

Several terms used in the Act can only be interpreted by looking at the
intentions between the partners or the way the partnership business is run.
The intention of the partners or the way the business is run can only be
construed if there is a written agreement to refer to. If there is no written
agreement, it will make it difficult to reveal what the parties had actually
agreed upon.

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CAPACITY
Generally any one can enter into a partnership.
However, as a partnership is subjected to the general principles of ordinary
contract, a person who becomes a partner should have the capacity to contract
-S.11 of the Contract Act, 1950.
A minor is not prevented from entering into a partnership. This means that
there can be a partnership between a minor and an adult. The principle that a
minor could be in a partnership for any duration of time until he wants to get
out of it was established in Goodie v Harrison (1821) 5 B & Ald, 157. On
reaching the age of majority, a minor can, if he wishes, discharge himself from
all future debts of the firm by terminating the partnership. If he fails to
repudiate the agreement, he will be liable for the partnership debts.
A partnership with a minor is risky for the other adult partners, as minors
cannot incur or be responsible for any contractual liability for the firms debts.
They can only be made liable for debts which are legally enforceable against
them, which would be for their necessaries.
William Jack & Co. (Malaya) Ltd. V Chan and Yong Trading Co. [1964] 30 MLJ
105;

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REGISTRATION

When a firm is establish it is required to be registered
under the Registration of Businesses Act 1956. However, a
firm is not affected by its failure to register. It would still be
valid as a firm.
Sivagami Achi v P.R.M Ramanathan Chettiar & Ors [1959]
25 MLJ;
The registration of a persons name as partner is prima
facie evidence that he is a partner. This however does not
prevent the other partners from proving that he is really
not a partner.
Gulazam v Noorzaman & Sobath [1957] 23 MLJ 45
The failure to register a business which was supposed to be
partnership was held by the court as not affecting the right
of a partner to legal action against the other partners.

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THANK YOU
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