Tuesday 16 August 2011

FORMATION OF PARTNERSHIP

In formation of a partnership, the elements of a valid contract including consideration, competency, free consent, lawful purpose, must be present. Also the relations between partners concerning rights and duties will usually be contained in an agreement or defined by the Partnership Act 1961.

1. Partnership under the Law Distinct from a company, a partnership firm has no separate legal entity from its founder under the law. A partnership is the relationship between individuals who intend to do a business in common together. It is not a legal persona but a label used by a number of individuals trading under that particular name.

Section 6 of the Partnership Act 1961 allows persons to form a partnership to be called a firm under the name in which the business is carried on. The name under which a firm carries on business is the name applicable to the persons who are partners of the firm. Thus, when an action is brought against the firm's name, it is in fact an action against all the partners. For

example, Husain, Akbar and Chua are partners, carrying on business under the name of HAS Enterprise. Hence, if any person brings an action against HAS Enterprise, it is an action against Husain, Akbar and Chua.

2. Lawful Purpose
A partnership must be formed for a lawful purpose. A partnership is said to be illegal when it is formed with the intention to carry out business activities against the law. Under Section 47(2) of the Partnership Act 1961, a partnership is also considered as illegal if the number of partners exceeds twenty persons.

3. Capacity
The partners must have the capacity to enter into contract. A partner is competent to contract if he is an adult, of sound mind and has not lost capacity to enter into contracts under any laws. In partnership, a minor can become a partner. However, a minor partner is not liable for all the firmÊs debt and contractual liabilities. When a minor partner reaches his age of majority, he can exonerate himself from liability by withdrawing himself from the firm. But if he remains in the firm, he will be liable with other partners.

4. Partnership Agreement
Partners agreement may be in the form of oral or written agreement. The partners may have partnership agreements in writing, usually known as Articles of Partnership which provides for particulars of the firm and the terms of the partnership. In absence of a partnership agreement, the provisions of the Partnership Act 1961 will be applicable to the partners. For mutual rights and duties of partners, they may be varied by the partner's consent as provided under Section 21 of the Partnership Act 1961.

5. Registration of Partnership
A partnership must be registered under the Registration of Businesses Act 1956 (in Peninsular Malaysia); Sarawak Cap.64 (Business Names) and Cap.33 (Business, Professions and Trade Licensing)(in Sarawak); Trades Licensing Ordinance, No. 16, 1948 (in Sabah).

Particulars as to the date of operation of business, name of business, name of partners, registered address of business, type and nature of the business, shall be submitted to the Registrar of Business for registration.

Any changes to the above particulars is to be reported to the Registry Department. In the event of a dissolution of partnership or death or retirement of a partner, a report on the same shall be made to avoid liability to third party after the occurrence of any of the above.

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