Sunday, 31 July 2011

DEFINITION OF PARTNERSHIP AND ITS CHARACTERISTICS


Section 3(1) of the Partnership Act 1961 defines partnership as

"the relation which subsists between persons carrying on a business in common with a view of profit."


Partnership however does not include clubs, societies, mutual benefit organizations and building societies.


(a) The relation between parties
In order to form a partnership, there must be a minimum of two persons. Therefore, there is usually an agreement to be made by the parties which lay down certain terms and conditions relating to the partnership business, and duties and responsibilities of the partners involved.

This agreement will be binding upon every partner and enforceable in law.

(b) The agreement is for business purpose
Section 2 of the Partnership Act 1961 defines 'business' as includes every trade, occupation or profession. Thus, the persons must have an agreement to have a business in common.

(c) The business is for purpose of gaining profit
This means the partners agree to carry on business for profit. Thus, if a person is excluded from sharing any profit in a partnership, then he is not a partner. Similarly, the relationship between persons to do voluntary or welfare works is not a partnership.

Section 3(2) of the Partnership Act 1961 therefore excludes the following list from the definition of partnership:

• The relation between members of a company or association which is registered as a company under the Companies Act 1965 or a co-operative society under any written law relating to co-operative societies;

or

• The relation between members of a company or association which is formed or incorporated by or in pursuance of any other law having effect in Malaysia or letters patent, Royal Charter or Act of Parliament of the UK.

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