THE LAW OF PARTNERSHIP

The law of partnership is governed by the Partnership Act 1961 (Revised

1974).
In Peninsular Malaysia, a partnership business must be registered under the
Registration of Business Act 1956.
In Sarawak, it must be registered under the Sarawak Cap.64 (Business
Names) and Cap.33 (Business, Professions and Trade Licensing).
In Sabah, it must be registered under the Trade Licensing Ordinance No. 16
1948.
However the mere failure to register the partnership under these statutes
would not mean that the partners cannot enforce their rights against each
other if on the facts, a partnership exists. (court will decide)
Section 3 (1) of the PA 1961 defines a partnership as the relation which
subsists between persons carrying on business in common with a view of
profit
Section 3 (2) of the PA 1961 states that the co-operative societies and registered
statutory and chartered companies are specifically excluded from the definition.

NATURE OF PARTNERSHIP

A partnership need not have to be created by a formal deed

or written agreement. It may be created orally or in writing.
Definition of partnership 3. (1) Partnership is the relation
which subsists between persons carrying on business in
common with a view of profit.
How many persons?
What is carrying on business?
What is business in common?
What is a view of profit?

The word business has been defined in Section 2 of the PA

1961 as including every trade, occupation or profession.

Section 4 of the PA 1961 lays down the circumstances in

which there are NO prima facie partnerships.
a) Joint tenancy, tenancy in common,
common property, or part ownership

joint

property,

b) The sharing of gross returns

c) The receipt by a person of a share of the profits of business
is prima facie evidence that he is a partner in the business,
but the receipt of such a share, or of a payment contingent
on or varying with the profits of a business, does not of itself
make him a partner in the business; and in particular

i.

The receipt by a person of a debt or other

liquidated amount, by instalments or otherwise,
out of the accruing profits of a business does not
itself make him a partner in the business or liable
as such;

COX v HICKMAN (1860) 8 H.L.

Cas. 268
Facts:
A, a trader, was unable to pay his creditors.
A came to an agreement with the trustees of his
creditors whereby he assigned his property to
them as well as allowed the trustees to have
influence over the running of the business.
This was to enable the trustees to be paid out of the
profits.
Held:
This arrangement did not create a partnership. At
best, the business was carried out on behalf of A.

ii.

A contract for the remuneration of a servant or

agent of a person engaged in a business by a
share of the profits of the business does not of
itself make the servant or agent a partner in the
business or liable as such;

WALKER v HIRSCH (1884) 27 Ch.D 460

Facts:
P lent money to H & Co which was controlled and owned by
two persons.
P signed an agreement with H & Co which provided that P
would be paid a salary and one-eighth of the profits and
losses and the agreement could be determined with four
months notice.
P, who was a clerk, continued as such in H & Co after the
agreement.
Held:
P was merely a servant and was not a partner.

iii.

A person being the widow or child of a deceased partner, and

receiving by way of annuity a portion of the profits made in
the business in which the deceased person was a partner, is
not, by reason only of such receipt, a partner in the business
or liable as such;

I.R.C. v LEBUSS TRUSTEES [1946] ALL ER 476

Facts:
A deceased partner, in his will, bequeathed his share of the
profits in a firm to his wife.
The widows share of the profits was not paid by the
continuing partners and was in that year surtaxed by the
Inland Revenue.
Held:
The widow was not a partner in the business and none of the
assets of the firm belonged to her.
Therefore, her share of profits should not have been surtaxed.

iv.

The advance of money, by way of a loan to a person engaged or

about to engage in any business on a contract with that person
that the lender shall receive a rate of interest varying with the
profits, or shall receive a share of the profits, arising from carrying
on the business, does not of itself make the lender a partner with
the person or persons carrying on the business or
liable as such: Provided that the contract is in writing and signed
by or on behalf of all the parties thereto;

RE YOUNG [1896] 2 QB 484 Facts:

A and B entered into a written contract whereby A lent money to B
for his business and in return A would be entitled during the
continuance of this agreement, to draw from the profits of the
business the weekly sum of.
There was also an option for A to become Bs partner but A never
exercised this option.
Held:
A was not Bs partner.

v.

A person receiving, by way of annuity or otherwise, a portion of

the profits of a business in consideration of the sale by him of the
goodwill of the business is not, by reason only of such receipt, a
partner in the business or liable as such.

PRATT v STRICK (1932) 17 T.C. 459 Facts:

A professional man sold his practice and goodwill to another.
In the agreement, he would continue to generate goodwill for his
purchaser for a period in return for a share of the profits.
Held: There was no intention that a partnership was to be
established.

FORMATION OF PARTNERSHIP

A partnership can be formed with or without a written agreement.

Section 3 (1) of the PA 1961, Minimum of 2 partners in a firm.

Section 47 (2) of the PA 1961, maximum of twenty.

Section 14 (3) of the CA 1961, professional partnership firms are

not subject to any maximum limit on the number of members.

General Rule = Everyone sui juris (of legal capacity) is capable of

entering into a partnership agreement.

There can be a partnership between a minor and an adult.

A minor could be in a partnership for any duration of time until he

wanted to disaffirm it.

However, a minor cannot incur or be responsible for any contractual

liability for the firms debts.

WILLIAM JACKS & CO (MALAYA) LTD. v CHAN & YONG TRADING CO.
[1964] 30 M.L.J. 105
Facts:
The plaintiff claimed against the defendants the sum of $ 12
734.91 for goods sold and delivered by the plaintiff to the
defendants.
Chan and Yong were sued as partners of the defendant firm.
Yong did not take any steps to defend but Chan raised the following
defences:

1) That no firm by the name of Chan & Yong Trading Co. ever
existed, and that, if such a company did exist, he was not a
partner thereof;
2) That he had not in any way represented or held himself out
as partner of the said firm;
3) The goods bought from the plaintiff were for the personal
use of Yong who was a minor and that the partners were
therefore not liable.
Held:
1. Chan was a partner of Chan & Yong Trading.
2. Chan represented himself to be partner in the firm by
approaching a salesman of the plaintiff to ask for credit facilities
with the plaintiff company, by registering the partnership with the
Registrar of Businesses, and by opening a banking account with
his own money in the name of the partnership with the Bangkok
Bank. Each mode of representation was sufficient to fix him with
liability as a partner of the firm.
3. The fact that Yong made use of the goods bought from the
plaintiff for his own purpose did not mean that the partnership
and consequently the partners were not liable.
4. As Yong had not taken any steps after attaining the age of
majority to repudiate the partnership he was also liable as a
partner of the firm.

RELATIONSHIP BETWEEN PARTNERS AND OUTSIDERS

Power of partner to bind firm

7. 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.

As partners are agents of the partnership firm, any act or omission committed
by one parties binds the rest of the partners if it is carried out within the
ordinary scope of the firms business.
The authority of each partner may be either actual (express or implied) or
apparent (or ostensible).

Express authority may be given in writing (as in the partnership agreement) or

orally.

Implied authority is inferred from the conduct of the parties.

Apparent or ostensible authority arises when the partner holds out to others
that he has such authority section 8, PA 1961.

Partners bound by acts on behalf of firm

8. An act or instrument relating to the business of the firm and done or executed in the firm-name,
or in any other manner showing an intention to bind the firm, by any person thereto authorized,
whether a partner or not, is binding on the firm and all the partners:
Provided that this section shall not affect any general rule of law relating to the execution of
deeds or negotiable instruments.

Section 10 of the PA 1961 provide if the third party has notice of the
agreement between the partners that there are some restrictions on the

power of any one or more of them to bind the firm, the firm will not be
bound in respect of any act done in contravention of the agreement.

For the 3rd party to hold the partnership firm and the rest of the
partners liable, the following conditions must be satisfied:

i.

The act must be done for the purpose of the business of the

ii.
iii.

partnership (Section 7 & 9 of the PA 1961)

The act must be done in the firms ordinary course of business.
The act must be done by the partner as a partner of the firm
and not in his own personal capacity.

LIABILITY OF PARTNERS
Ordinary torts
Misapplication
Misappropriation
Criminal liability
Contractual liability
Ordinary Torts

Section 12 of the Partnership Act 1961

Where, by any wrongful act or omission of any partner acting in the

ordinary course of the business of the firm or with the authority of

his co-partners, loss or injury is caused to any person not being a
partner in the firm, or any penalty is incurred, the firm is liable
thereafter to the same extent as the partner so acting or omitting to
act.

By virtue of Section 12 of the Partnership Act 1961, in order to make a firm

liable, the tortious act must be committed by a partner either in the
ordinary course of the business of the firm or with the authority of his copartners.

For example, all the partners of an accounting firm would be liable if any one
of them has been negligent in the handling of accounts for their client.

Misapplication

Section 13 of the Partnership Act 1961

Misapplication of money or property received for or in custody of firm in

the following cases, namely:-

a) Where on partner, acting within the scope of his apparent

authority, receives the money or property of a third person
and misapplies it; and
b) Where a firm in the course of its business receives the money
or property of a third person, and the money or property so

received is misapplied by one or more of the partners while it

is in the custody of the firm,
The firm is liable to make good the loss.

Every partner is liable jointly and severally for everything for which the firm,
while he is a partner therein, becomes liable under Section 12 or 13.

This means that if the partnership firm is liable for wrongs under Sec 12 of the
PA 1961 or liable to make good the loss due to misapplication of money

or property, the plaintiff can sue all the partners jointly or may even sue
one or more of the partners concerned.

Misappropriation

Section 15 of the PA 1961 provides to the effect that if a partner, acting in his
individual capacity, improperly makes use of trust property in the business

of the firm, as a general rule, his other partners are not liable to the
beneficiaries.

However, if the trust money is still in the firms possession or under its control,
the beneficiaries can recover the same from the firm.

Criminal Liability
A partner may also be liable for criminal liability under the Penal Code (kanun
keseksaan)
. i.e cheating the client will fall under Section 416 kk / sek. 420 kk

CHUNG SHIN KIAN & ANOR v PUBLIC PROSECUTOR [1980] 2 MLJ 246 Facts:

Officers from the Trade Description Department raided the accuseds tailor
shop.
At that time, there were 10 workers engaged in stitching materials into
jeans and jackets.
The premises were searched and officers discovered various types of
Texwood labels and tags, and Texwood jeans and jackets both finished
and unfinished.
During the raid, only the first accused was present in the
shop. The second accused, a partner, was not present.

The charge made against both the accused was that in the course of their
business, they applied a false trade description name Texwood to 10
pieces of jackets and fifty-seven pairs of jeans.
Both accused were convicted and sentenced for an offence under Section
5(1)(a) of the Trade Description Act 1972.
They appealed.

Held:
1) The first accuseds appeal was dismissed.
2) The second accuseds appeal was allowed. There was no evidence
showing that the second accused was implicated in the offence
except that he was a partner of the shop.

Although partners are jointly liable in civil cases, they are not jointly liable in
criminal cases.

Contractual Liability

Section 11 of the Partnership Act 1961 states to the effect of this section is
that 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.

GUINNESS ANCHOR MARKETING SDN BHD v CHELLAM JOE [1999]7 CLJ 392

A joint liability basically means that where there is only one cause of
action for the recovery of debt, and that cause of action having
been
exhausted a second cause of action or a new proceeding is no
longer available against any partner or partners whom the creditor
failed to sue at the first instance.

DURATION OF LIABILITY
Section 19 (1) PA 1961
A new partner who has just been admitted into a firm is not liable for the
debts incurred prior to his admission.
However, if the new partner agrees to be liable for the existing debts of
the partnership at the time of his admission, he would be liable.
Section 19 (2) and (3) PA 1961
(2)
A partner who retires from a firm does not thereby cease to be liable for
partnership debts or obligations incurred before his retirement.
(3)
A retiring partner may be discharged from any existing liabilities by an
agreement to that effect between himself and the members of the firm as
newly constituted and the creditors, and this agreement may be either
express or inferred as a fact from the course of dealing between the
creditors and the firm as newly constituted.
SUBRAMANIAM CHETTIAR v KADEN MASTAN & CO [1934] MLJ 74
It was decided that mere abandonment and inactivity by a partner who
has given up all hope of recovering his share does not affect his liability for
the partnership debts.

Liability of Persons for Holding Out

Section 16 of the PA 1961 provides that persons may be liable by holding
out.
The effects of this section is illustrated in the case of WILLIAM JACKS &
CO. (MALAYA) LTD. v CHAN & YONG TRADING CO [1964] 30 MLJ 105:

One of the defences raised by the defendant Chan was that he had not
in any way represented or held himself out as partner of the
partnership firm.

 The court held that Chan had represented himself to be a partner in the
firm by approaching a salesman of the plaintiffs to ask for credit

the
facilities with the plaintiff company, by registering partnership
banking
with the Registrar of Businesses, and by opening a account
with the Bangkok Bank, using his own money in the name of
Partnership.

Each mode of representation was sufficient to fix him with liability as a

partner of the firm.

Liability of Retires Partners

Section 38 (1) of the PA 1961:After retirement, a partner is still liable to persons who deal with the firm
after a change I its constitution unless he has given notice to such persons
that he is no longer a partner.

MALAYAN BANKING BERHAD v LIM CHEE LENG & ANOR [1985] 1 MLJ 214
Facts:
The respondents were partners of a firm called Berjasa Corporation.
The appellants sued the respondents under a trust receipt which matured
and became payable on 14 June 1975.
2 of the respondents resigned from the firm on 16 August 1976.
Held:
The respondents incurred the debt on the trust receipt before their
resignations or retirement and they could not escape liability by merely
pleading resignation or retirement.

Relationship between partners inter se

Determined by their partnership agreement.

The partnership agreement normally provides for the rights and duties of the
partners, the conduct and management of the firm, the capital and their
profit sharing arrangement.

In Malaysia, it is common for there to be no written partnership agreement

and provisions in the Partnership Act 1961 would therefore apply unless the
partners have orally agreed on those provisions.

The interests and duties of partners in the absence of agreements to the

contrary are provided for in Section 26 of the PA 1961.

The rules in this section apply in the absence of an agreement to the

contrary.

The principle of utmost good faith between partners is implicit in every

partnership agreement and is a prime requisite in relations between
partners.

This is because the relationship between partners is based on mutual

trust and confidence.

Section 30 of the PA 1961 = Partners are bound to render true accounts and
full information of all things affecting the partnership to any partner or his
legal representatives.

LAW v LAW [1905] 1 Ch. 140

Facts:
A partner sold his share in the partnership to another partner for 21,000.
Subsequently he discovered that, unknown to him; the partnership assets
included mortgages and other securities.
The other partner, who knew about them, never told him of this fact.
The partner who sold his share sought a court order for the sale and
purchase agreement to be set aside.

Held:
An order setting aside the transaction would have been made but for the
fact that in this case, a settlement of the claim had been made and the
partner had agreed to be bound by it.
Therefore, on the facts, the transaction could not be set aside.

Section 31 of the PA 1961 = accountability of partners for private profits.

However, a partner is not prevented from keeping any profits made

from transactions that are entirely outside the scope of partnership.

A partner must not make a profit or commission for himself by making

use of his position or any information acquired in the partnership
business.

A partner must not make a profit from a sale of the firms property
without full disclosure to the other partners.

Section 32 of the PA 1961 = duty of partner not to compete with firm.

If there is breach of duty committed by a partner, he is only liable to make

good the loss suffered by the partnership if he is guilty of fraud or culpable
negligence or wilful default.

Partnership Property

Has been defined in Section 22(1) of the PA 1961:

All property and rights and interests in property originally
brought into the partnership stock or acquired, whether
by purchase or otherwise on account of the firm or for
the purposes and in the course of the partnership
business, and must be held and applied by the
partners exclusively for the purposes of the partnership
and in accordance with the partnership agreement.

 Provided that the legal estate or interest in any land which belongs to the
partnership shall devolve according to the nature and tenure thereof and the

general rules of law applicable thereto but in trust, so far as necessary, for
the persons beneficially interested in the land under this section.

It must be used and applied for the purposes of the firm and in strict
accordance with the partnership agreement.

WRAY v WRAY [1905] 2 Ch. 349

Facts:
Joseph Turnbull and William Wray together with his son, Henry Wray and
William James Wray, formed a partnership under the name William Wray.
William Wray died in 1885and his widow became a partner.
In 1890, the partners bought a house out of the partnership assets and the
property was conveyed to William Wray, this name being signed by Henry
Wray with the concurrence of the other partners.
Henry Wray died in 1902.
The three continuing partners sought a declaration that the conveyance of
the house to William Wray passed to the persons carrying on business
under the name of William Wray because it had been purchased out of
the partnership assets.
Held:
The declaration was granted.

Section 24 of the PA 1961:

Where land or any interest therein has become

partnership property, it shall, unless the contrary intention
appears, be treated as between the partners (including
the representatives of a deceased partner), and also as
between the heirs of a deceased partner and his
executors or administrators, as personal and not real
estate.

In other words, Section 22(1) of the PA 1961 deals with the partnership
property what constitutes partnership property, its application and

devolution; WHILE Section 24 of the PA 1961, speaks of conversion into

personal estate of land held as partnership property.

The underlying principle in Section 24 is that prima facie, unless there exists
an agreement to the contrary, the property of the partnership has to be sold

on dissolution of partnership, though in equity it is deemed to have

already been converted.

Whether or not a property is partnership property or a property deemed to be

partnership property depends on the intention of the partners which has
to be determined o each individual case.

The fact that a property is used by all the partners for the partnership
purposes need not necessarily qualify it to be termed partnership property

even though the partnership may be debited with the outgoings and
expenses of the property, unless there is evidence to show such an
intention.

Shares in partnership and assignment

The share of a partner is defined as his proportional division

of the joint

assets after their realization and conversion into money and after payment

and discharge of the joint debts and liabilities.

Whether a partner can dispose of his share to another person depends on

the construction of the partnership deed.

Unless there is express provision in the deed, a partner cannot transfer his
share to another person so as to entitle that person to all the rights of a
partner without the unanimous consent of all the partners.

Section 33(1) of the PA 1961:- although a partner cannot transfer his share
without the consent of all other partners, the PA allows him to assign his
share in the assets and profits.

The rights of an assignee are limited and he is not entitled to act as a

partner.

For instance, an assignee cannot interfere in the management of the

business and he cannot object to payments made by the firm to individual
partners
and employees for managing the business.

An assignee is not entitled to require any accounts of partnership transactions or to inspect

partnership books.

It is only on dissolution of the partnership that an assignee is entitled to

receive is share of the partnership assets and to call for an account as from
the date of dissolution.

Section 33 of the PA 1961:- the rights and restrictions of an assignee.

During the continuance of the partnership, an assignee has the right

to receive the assignors share of the profits, and the assignee

must accept the account of profits agreed to by the partners.

However, during the continuance of the partnership, the assignee

does not have the following rights:

1. To interfere in the management or administration of the

partnership business or affairs;
2. To require any accounts of the partnership transactions;
3. To inspect the partnership books.

When the partnership is being dissolved, the assignee has the following rights:
i.

To receive the assignors share of the partnership assets;

ii.

To receive an account as from the date of dissolution in order to

ascertain his share of the partnership assets.

DISSOLUTION OF PARTNERSHIP

May happen in various circumstances

and its consequences not only affect
the partners themselves but 3rd parties dealing with them.
It is provided under Part V of the Partnership Act 1961.
A partnership may be terminated / dissolved by:
Agreement

Operation of law

Death / bankruptcy

Charging on shares

Supervening illegality

Court order

By agreement

If the duration of the partnership has been specified in the

partnership agreement, the partnership is terminated on the expiry of
that period;

If the partners mutually agree to dissolve the partnership.

By operation of law (unless otherwise agreed between the partners)

Section 34 (1) (a) of the PA 1961: if the partnership was entered into
for a fixed term and the term expires.

Section 34 (1) (b) of the PA 1961: if the partnership was entered

into for a single adventure or undertaking, and that adventure or
undertaking terminates.

Section 34 (1) (c) of the PA 1961: if the partnership was entered

into for an undefined time, by any partner giving notice to the other
partner(s) of his intention to determine (or end) the partnership.

By death or bankruptcy (unless otherwise agreed between the partners)

Section 35 (1) of the PA 1961 : Dissolution by bankruptcy, death or

charge
Subject to any agreement between the partners, every partnership is
dissolved as regards all the partners by the death or bankruptcy of any
partner.
Lee Choo Yam Holdings Sdn Bhd & Ors v Khoo Yoke Wah & Ors
[1990] 2 MLJ 431

By charging on shares

Section 35 (2) of the PA 1961

A partnership may, at the option of the other partners, be dissolved if any
partner suffers his share of the partnership property to be charged under
this Act for his separate debt.

Dissolution by illegality of partnership

Section 36 of the 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 in partnership.

Example - solicitor not renew license

HUDGELL YEATES & CO v WATSON [1978] QB 451

A client of a firm of solicitors denied liability to pay the plaintiffs firms
bill of cost on the basis that as one of the partners, S who inadvertently
failed to renew his annual practicing certificate until may of the relevant
year had disqualified himself from acting as a solicitor, the firm was
precluded from recovering cost for work done for the defendant in that
period.
Court of Appeal (by majority) held that when Ss certificate lapsed the
existing partnership between himself and the remaining partners was
automatically dissolved, since it was illegal for an unqualified person to
be a member of a solicitors partnership, but the partnership was
reconstituted during the relevant period as a partnership between the
remaining partners. Furthermore J and G were not estopped from
denying that S had been a partner during the relevant period for,
although they had held S out as being a partner, the defendant had not
instructed the firm in reliance on the representation that S was a
partner. Accordingly, since no work had been done for the defendant by,
or under supervision of S, during the relevant period , H and G as the
remaining partners were entitled or recover their costs for the work
done for him during that period.

By court order

Section 37 of the PA 1961

The court may order the dissolution of the partnership, on

application by a partner, in any of the following cases:

Section 37 (a) of the PA 1961: Insanity of a partner

Section 37 (b) of the PA 1961: Permanent incapacity of any

partner to perform his duties
o

WHITWELL v ARTHUR [1865] 35 Beav. 140; 55

ER 848

A partner in a firm of pharmacists was disabled by a

paralytic stroke and his co-partners applied to the
court for dissolution of the partnership, on the
ground that the stricken partner was incapable of
carrying out his duties in the partnership business.

The application was stayed on the ground that there

was some evidence before the court that there had
been a recent improvement in the disabled partners
condition. However, liberty to apply was reserved to
the applicant in the event of there being a
deterioration in his partners health.

Section 37 (c) of the PA 1961: Conduct calculated to

prejudicially affect the carrying on of the business.

Section 37 (d) of the PA 1961: Wilful and persistent breach

of the partnership agreement (by any partner other than
the applicant)

CHEESEMAN v PRICE [1865] 35 Beav. 142; 55

ER 849

Held the persistent failure of a partner to account

to his co-partners for money which he had received
from the firms customer was a ground upon which
the court had jurisdiction to make a decree of
dissolution.

Section 37 (e) of the PA 1961: when the business of the

partnership can only be carried on at a loss
o
o

HANDYSIDE v CAMPBELL [1901] 17 TLR 623

Plaintiff was a partner in a firm of cargo
extraction. Plaintiff made an application to the
court to dissolve the partnership as the
partnership could only be carried on at loss and
no profit will be made at all. The other partners
claimed that the loss was sourced by the weak
management of the plaintiff. Furthermore the
plaintiff had for a long period absent at work for
health condition. The other partners was in
confident that the business may made profit by
a good management.
Held Dismissed the application, for the court to

order a dissolution on this ground it must be

satisfied that for all practical purposes, it is
impossible for the business to make a profit.

Section 37 (f) of the PA 1961: Where, in the opinion of

the court, it is just and equitable to dissolve the
partnership.
o
o

RE YENIDJE TOBACCO CO LTD [1916] 2 Ch D

426
W and R are partners, they were only two of
them directors and shareholders of the firm.
They had reached such a state of personal
antagonism that they refused to communicate
except through the medium of their secretary. R
constituted an action against W for a fraud.

Held- the company was ordered to be wound up,

under the provisions of the Companies
(Consolidation) act 1908. The order was made in
spite of the fact the companys business was
highly profitable.

Lord Cozens Hardy: I think that in a case like

this we are bound to say that circumstances
which would justify the winding up of a
partnership between these two by action are
circumstances which would induce the court to
exercise its jurisdiction under the just and
equitable clause to wind up the company.

Notice of Dissolution
Section 39 of the PA 1961:

Unless a notice of dissolution is given, all customers of the

partnership are entitled to treat all the former members as
continuing to be members.

Notice of dissolution may be given by an advertisement in a local

press, gazette or by a circular letter.

However, for old customers and clients of the partnership, an

advertisement in a gazette alone is not sufficient notice.

Continuation of Authority of partners

Section 40 of the PA 1961: After the dissolution of a partnership, the authority
of partners continues only so far as is necessary to wind up the affairs of the
partnership and to complete uncompleted transactions.

Section 44 of the PA 1961, envisages a situation where prior to the

settlement of account, i.e. before the winding up of the partnership, in the
event the surviving partner carries on with that business using the same
name, then that surviving partner has to account to the estate of the late
partner giving it the option to a share of the profits or to pay an interest of
8 per cent per annum on the amount of his share of the partnership
assets.

SETTLEMENT OF ACCOUNTS AFTER DISSOLUTION

Upon dissolution of a partnership, every partner is entitled to have the
property of the partnership applied in payment of the debts and liabilities of
the firm, and to have the surplus assets after payment of the debts distributed
among the partners.

Section 41 of the PA 1961. RIGHTS OF PARTNERS AS TO APPLICATION OF

PARTNERSHIP PROPERTY
Upon dissolution of a partnership, every partner is entitled to have the
property of the partnership applied in payment of the debts and liabilities of
the firm, and to have the surplus assets payment of the debts distributed
among the partners.

The rules for dissolution of partnership assets on final settlement of accounts

are laid down in Section 46 of the Partnership Act 1961 which reads:
o In settling accounts between the partners alter a dissolution of
partnership, the following rules shall, subject to any agreement,
be observed:
(a) losses, including losses and deficiencies of capital shall be
paid first out of profits, next out of capital and lastly, if necessary,
by the partners, individually in the proportion in which they were
entitled to share profits; and
(b) the assets of the firm, including the sums, if any, contributed
by the partners to make up losses or deficiencies of capital, shall
be applied in the following manner and order:
(i) in paying the debts and liabilities of the firm to persons who
are not partners therein;
(ii) in paying to each partner ratably what is due from the firm to
him for advances as distinguished from capital; (iii) in paying to
each partner ratably what is due from the firm to him in respect
of capital; and (iv) the ultimate residue, if any, shall be divided
among the partners in the proportion in which profits are
divisible.