Conventional Partnership PDF

Partnership Can a minor become a partner? YES He will get the profit and benefit from the partnership BUT he will not be liable for any debt - A minor cannot incur OR be personally liable (jointly and severally with the other partners) for the firm's contractual liability/firm’s debt. O...

Partnership Can a minor become a partner? YES He will get the profit and benefit from the partnership BUT he will not be liable for any debt - A minor cannot incur OR be personally liable (jointly and severally with the other partners) for the firm's contractual liability/firm’s debt. Once he/she reaches 18 years of age (age of majority), he can decide whether to stay in the partnership or not. If he/she decides not to, they can be excluded from any previous or future debt of the firm. But if he/she decides to stay, they will jointly and severally liable to the previous and future debt of the firm (start from the first day become a partner) - On reaching the age of majority, a minor can, (if he wishes), discharge himself from all the future debts of the firm by terminating the partnership. - Failure to repudiate the agreement will make him liable for the partnership debts. Case: William Jakes & Co. (Malaya) Ltd v Chan & Yong Trading Co. (1964) 30 MLJ 105 Types of partnership 1. General 2. Active 3. Sleeping/Dormant 4. Salaried 5. Apparent/Quasi Apparent/Quasi Partner A person who is not a partner but can be held liable as a partner - there has been a “holding out” Holding out = occurs when (spoken by words/written), a person represents himself as a partner in the firm OR knowingly allows himself to be represented as a partner in the firm. Case: Bevan v The National Bank Ltd (1906) 23 TLR 65 When will a person be held liable as an apparent partner? s.16 PA 1961 Persons may be made liable as a partner for such “holding out” The liability is based on the doctrine of estoppel. Requirements: 1. Must have been a representation by a person that he is a partner OR he must have knowingly allowed someone else to represent that he was a partner when in fact he was not. 2. Could be in oral,written or by conduct 3. Third party must have relied on the representation 4. Third party must have given credit to the firm on the strength of that representation Credit must have been given The apparent partner's liability is only towards person who have given credit to the firm on the strength of (because of) the representation. Case: Lynch v Stiff (1944) Effect of holding out on the estate of a deceased partner s.16 PA 1961 After a partner's death, the partnership business is continued in the old firm's name, the holding out shall not make the deceased person's estate liable for any of the partnership debts contracted after his death. Relation between the partners In the absence of a partnership agreement to the contrary, the general provisions of s.26 PA 1961 and the common law fiduciary duties shall apply. s.26 PA 1961 In the absence of the agreements to the contrary, the general interests and duties of partners are: 1. All the partners are entitled to share equally in the capital of the business 2. All the partners are entitled to share equally in the profits of the business 3. All the partners must contribute equally towards the losses (whether capital or otherwise sustained by the firm) 4. Every partner may take part in the management of the partnership business 5. The firm must indemnify every partner in respect of payments made and personal liabilities incurred by him: a. In the ordinary and proper conduct of business of the firm] b. In or about anything necessarily done for the preservation of the business 6. A partner making an actual payment or advance beyond the amount of capital which he has agreed to subscribe is entitled to interest at the rate of 8% per annum from the date of the payment advance 7. A partner is not entitled to interest on the capital subscribed by him before the ascertainment of profits 8. No partner shall be entitled to remuneration/salary for acting in the partnership business 9. No person may be introduced as a partner without the consent of all existing partners 10. Any different arising as to ordinary matters connected with the partnership business may be decided by a majority of the partners, BUT no change may be made in the nature of the partnership business without consent of all existing partners 11. The partnership books are to be kept at the place of business of the partnership (or the principle place, if there are more places than one) and every partner may, when he thinks fir, have access to and inspect and copy any of them s.32 PA 1961 if a partner without the consent of the other partners, carries on another business of the same nature, and competing with the firm’s business, he must account for, and pay to the firm of partnership, all profits made by him in his business. Liabilities of partners 1. Contractual liability - s.11 PA 1961 2. Ordinary torts - s.12 PA 1961 3. Jointly and severally liable - s.12 & s.13 PA 1961 4. Misapplication - s.13 PA 1961 5. Misappropriation of trust - s.15 PA 1961 6. Criminal liability - Case: Chung Shin Kian & Anor. v P.P. (1980) 2 MLJ 246 7. Incoming partner - s.19(1) PA 1961 Contractual liability s.11 PA 1961 “every partner in a firm is liable jointly with the other partner for all debts and obligations of the firm incurred while he is 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” Effect: All partners in a firm are jointly liable for all contractual and other debts and liabilities including tax and judgment debts which are incurred while each is a partner. Ordinary torts s.12 PA 1961 “where by any wrongful act or omission of any partner acting in the ordinary course of the business of the firm OR acting with the authority of his co-partners, loss or injury caused to any person not being a partner in the firm, or any penalty in incurred, the firm is liable thereafter to the same extent as the partner so acting or omitting to act” NOTE: To make a firm liable: the tortious act must be committed by a partner either in the ordinary course of the business of the form OR with the authority of his co-partner. - All partners of an accounting form would be liable if any one of them has been negligent in the handling of accounts of their client. Jointly and severally liable s.12 & s.13 PA 1961 If the partnership firm is liable for wrongs under s.12 and s.13 PA 1961, the plaintiff can sue all the partners jointly, or, may even sue one or more of the partners concerned Misapplication s.13 PA 1961 If the partner misapplied the money or property received for a client, or, in the custody of the firm, the firm (all the partners) will be jointly and severally liable to make good the loss suffered by the client Misappropriation of trust s.15 PA 1961 If a partner, acting in his individual capacity, improperly makes use of trust property in the business of the firm, as general rule, his other partners are not liable to the beneficiaries. The wrongful partner has actually committed a criminal act of breach of trust. However, if the trust money is still in the firm’s possession, or under control, the beneficiaries can recover the same from the firm. Criminal liability They are not jointly liable in criminal cases. Incoming partner s.19(1) PA 1961 He is liable as a partner, but NOT for anything done before he became a partner. Liability of Retired Partners Retired partners: remains liable for debts incurred before he retired. - Not automatically freed of his liability for partnership debts incurred before or after his retirement. s.19(2) PA 1961 “ a partner who retires from the firm, does not thereby cease to be liable for partnership debts or obligations incurred before retirement” s.38(1) PA 1961 “ 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 had notice of the change” Retiring partner may take necessary steps to be released from his liability from both existing as well as future debts in the firm. For existing debts Retiring partner not liable for existing debts if: - There is an agreement between himself, the new firm and the creditors to the effect that he shall no longer be liable for such existing debts - Agreement may either be express or implied s.19(3) PA 1961 “ a retiring partner may be discharged from any existing liabilities by an agreement to that effect between himself and the firm as newly constituted and the creditors, and this agreement may be either expressed or inferred as a fact from a course of dealing between the creditors and the firm as newly constituted” For future debts Retiring partner not liable for future debts if: - towards new creditors: by putting advertisements in the Federal Gazette, Sabah Gazette and Sarawak Gazette - s.38(2) PA 1961 - towards existing creditors/customers/clients/suppliers: by giving actual notice to them about his retirement. NOTICE IN THE ADVERTISEMENT IS NOT SUFFICIENT Case: Re Siew Inn Steamship (1934) MLJ 80 NOTICE TO THE REGISTRAR OF BUSINESS IS NOT SUFFICIENT Case: Philips Singapore Private Ltd. v Han Jong Kwang & Anor. (1989) 2 MLJ 323 Relations between a partner and the 3rd Party 1 s.7 PA 1961 Partners are agents of the firm of partnership - any act or omission committed by one partner binds the rest of the partners 2 s.8 PA 1961 All partners are bound by acts done on behalf of the firm - If the firm is liable, that means all partners are jointly and severally liable 3 Authority The authority that a partner has while dealing with a 3rd party. Actual Authority - Express authority: given in writing or orally - Implied authority: inferred from the conduct of the parties Ostensible/Apparent Authority - arise when one person/partner holds out to others that he has powers/authority to represent the partnership - conditions for application:- - transaction must be within the scope of the kind of business carried by the firm - transaction must be transacted in the usual way - 3rd party has the knowledge or belief that person so acting is a partner  - 3rd party did not know that the person has in fact no authority ( 3rd party was in good faith) 4 Wrongful act Any act done outside the firm's ordinary courses of business will not bind the firm, and ONLY the wrongful partner will be personally liable to the 3rd party. - the form only be liable for any act done outside the firm’s ordinary courses of business IF THE FIRM AUTHORIZED IT. s.9 PA 1961 “where one partner pledges the credit of the firm for a purpose apparently not connected with the firm’s ordinary courses of business, the firm is not bound, (unless he is in fact specifically authorized by other partners); but this section does not affect any personal liability incurred by an individual partner” 5 From above understanding, we can deduce that: - if the 3rd party has notice of the agreement between the partners (the 3rd party knew that there are some restrictions on the power of the partner), the firm will not be bound in respect of any act done against/contrary to the partnership agreement s.10 PA 1961 IF the 3rd party was in good faith, and does not know about the restriction in the partner's authority, OR does not know the scope of the firm's ordinary business, then the firm and all other partners still be jointly and severally liable to the 3rd party when that partner acts beyond the authority/outside the ordinary business of the firm. NOTE: the innocent partners can later sue the wrongful partner for reimbursement because the wrongful partner has breached the partnership agreement or breached his duty as a partner. 6 the 3rd party may only hold the partnership firm and the rest of partners liable if the following conditions are satisfied: 1. Act must be done in the firm's ordinary course of business 2. Act must be done for the purpose of the business of the partnership 3. Act must be done by the partner as a partner of the firm and not in his own personal capacity AND/OR 4. 3rd party was in good faith and the 3rd party had no knowledge of the nature of the firm's business and/or the partnership agreement and/or the partner's limited authority/power and/or discrepancy Dissolution of Partnership  1. By agreement 2. By operation of law (unless otherwise agreed between partners) - s.34(1)(a),(b),(c) PA 1961 3. By supervening illegality - s.36 PA 1961 4. By death or bankruptcy (unless otherwise agreed between the partners) - s.35(1) PA 1961 5. By order of the court - s.37(a-f) PA 1961 By agreement - if the duration has been specified in the partnership agreement, the partnership is terminated on expiry of that period - if the partners mutually agree to dissolve the partnership By operation of law (unless otherwise agreed between the partners) - s.34(1)(a) PA 1961 : if the partnership was entered into a fixed term and term expires - s.34(1)(b) PA 1961 : if the partnership was entered into for a single adventure or undertaking, and that adventure or undertaking terminates (one purpose only to be fulfilled) - s.34(1)(c) PA 1961 : if the partnership was established for an undefined time, by any partner giving notice to the other partner(s) of his intention to determine(or end) the partnership - if the partner resigns, retired or quit, the CP will dissolve By supervening illegality s.36 PA 1961 “ a partnership is, in every case, dissolved by the happening of any event which makes it unlawful for the business of the firm to be carried on, or, for the members of the firm to carry it on partnership” By death or bankruptcy (unless otherwise agreed between the partners) s.35(1) PA 1961 - subject to any agreement between the partners, every partnership is dissolved as regards all the partners by the death or bankruptcy of any partner - UNLESS there is an agreement between the partners says that even if one of the partner is dead/bankrupt, the partnership will still be carried on as usual (the partnership will not dissolve upon death or bankruptcy) Case: Lee Choo Yam Holdings Sdn. Bhd. & Ors v Khoo Yoke Wah & Ors (1990) 2 MLJ 431 By the order of the court - entirely up to the judge to decide s.37 PA 1961 - provides that a partner may apply to the court for dissolution of the partnership in 6 different situations  - the power of the court under this section is ENTIRELY DISCRETIONARY as the section states that the court may decree a dissolution SITUATIONS: 1 Insanity of a partner s.37(a) PA 1961 - provides that when a partner is found lunatic or is shown to be of permanently unsound mind, an application may be made to the court for a dissolution of the partnership - this application can be made not only by the other partners but also on behalf of the partner who is of unsound mind, by his committee, next friend or any person having title to intervene 2 Permanent incapacity s.37(b) PA 1961 - the court may also order a dissolution where one partner becomes in any other way, permanently incapable of performing his part of the partnership contract - this application can only be made by the other partner - where there is a reasonable possibility that the incapacity is only of a temporary nature, the court will refuse to order dissolution Case: Whitwell v Arthur (1865) 3 Prejudicial conduct s.37(c) PA 1961 - a partner may apply to the court for a dissolution of the partnership when another partner has been guilty of such misconduct, which in the opinion of the court, is calculated to prejudicially affect the carrying of the business (regard being had to the nature of a business) - a partner had a bad reputation and the reputation is affected the partnership Case: Carmichael v Evans (1904) 4 Carrying on the business at a loss s.37(d) PA 1961 - the court may order a dissolution if the business can only be carried on at a loss - it must be shown that there is no more possibility of making a profit - where there is still some possibility that the business could be made profitable if more attention is given in the future, the court will not order dissolution 5 Willful or persistent breach s.37(e) PA 1961 - provides that where one partner willfully or persistently commits a breach of the partnership agreement, or otherwise conduct himself in matters relating to the partnership business that it is not reasonably practicable for the other partner(s) to  carry on business in partnership with him, then they (the other partners) may apply to the court for dissolution - a partner keeps on breaching the law, agreement or contract - hard to work with him Case: Cheeseman v Price (1865) 6 Just and equitable ground s.37(f) PA 1961 - the court has a wide discretion to order dissolution of the partnership when the circumstances of the case are such that, in the opinion of the court, it is just equitable to do so - the court would consider it just and equitable to wind up the company is where the partners can no longer work together and have reached a deadlock Case: Ebrahimi v Westbourne Galleries Ltd (1973)