PARTNERSHIP FIRMA

As with a single business, partnership firms are also well-suited for small and medium sized
businesses. This type of business organization is also popular because of its easy-to-build process as
well as the cost of its establishment which is low and can be set up by its own partners.

Interpretation of Laws
The journey of a partnership firm in Malaysia is subject to the Partnership Act 1961. However, the
registration of the partnership business is located under the Business Act 1956 and Rules. However,
for professional members, they are excluded from registering their partnership firm pursuant to
section 4 and the First Schedule of the Business Registration Act 1956. Professionals may register
their business through professional bodies of their own as Bar Council, Malaysia Institute Of
Accountant, Malaysian Association of Architects, Malaysian Medical Association and others.
What does the partnership firm say? In the Partnership Act 1961, partnership means "The relationship
that exists between people who carry on business together for the purpose of profit". In his common
law, the law of partnership is also a contract law, therefore the Contracts Act 1950 and contract law
are adopted in the law of partnership. From this definition, there are three important elements in the
partnership as follows:

1. business
2. Run together
3. for profit

In section 2 of the Partnership Act 1961, businesses are defined as 'including any trade, occupation or
profession'. This definition means that a business must be a trading venture in the form of goods and
services to obtain returns. Hence, a partnership firm cannot be run for non-business purposes such as
charities and welfare. For established organizations that are not motivated for profit, they can register
them at the establishment.

Sharing should also be conducted jointly by two or more partners or business associates. Therefore, if
the business can be run for less than two, then there is no partnership and relationship between the
partners. The word "for profit" means that the partnership firm must be profitable, though not
necessarily the business will be profitable. It is crystal clear that these words are merely the intentions
of a partner rather than the profit sharing of each partner. In other words, the partnership should be
carried out together but not the profit that becomes the basis of the partnership.

"Relationship is the word found in the definition of partnership, which illustrates the inherent
agreement of the partners. The relationship among these partners may either be profound or implied;
and this relationship is said to be a contraception resulting from the partnership. Those who create
partnership among themselves, are for the purposes of this Act, referred to as a firm, and whose
business name is run by the name of the firm [4]

http://kamaludinrahman.blogspot.com/2009/10/introduction- business-single-and.html # _ftn4).

Generally, the number of members in the partnership is 2 to 20 people even though in the Partnership
Act 1961 does not state the maximum number of partners. However, the Company's act prohibits a
partnership firm that aims to do business if the number of partners exceeds 20 persons [5]

(http://kamaludinrahman.blogspot.com/2009/10/participation-and-one-and.html # _ftn5). If the

number of members of the partnership firm is more than 20 people, the firm is said to have been
invalid since the start (void ab initio). As a result, this firm loose the rights to take legal action against
any party because of its existence which has been canceled since the beginning.

Types of Partners
Sharing business is an extension or a continous of a single business. This business is formed in
combination with two or more people with the goal of gaining profit. The owners are known as
business partners. There are several types of business partners below:-

i. General / Active Partners

• have unlimited liability
• active snapshots in business operations
• donate capital

ii. Restricted Partners

• have limited liability
• inactive in business operations
• donate capital

iii. Sleeping Partners / Sleeping Partners

• donate capital
• entitled to receive profit
• inactive in ope activities

iv. Nominal Partner

• do not donate capital
• allow the name to be used
• people who have / have high levels of credibility
• also bear all partnership liabilities

Sharing Firm's Features

The sharing firm has no separate legal entity as the company. Therefore, a partnership firm does not
have the ability to contract, hire employees, commit crimes and even be sued. In other words, the
property and liabilities of the firm are assets and liabilities of the partners. Each firm's partners have
unlimited liability on all receivables incurred by the firm. All partners will share the profit or loss and
liabilities of the business equally unless stated otherwise in the partnership agreement.

Each partner is also an agent to another partner in doing business. The actions of the firm's partners in
the business may cause other partners to be liable. In conclusion, partnership is only a relationship
that exists, administers the rights and obligations among the partners and their relationships with the
community as a whole. Accordingly, the partnership firm does not have its own legal entitlement.

Establishing a partnership firm is quite complicated as it involves legal aspects and mutual consent
amongst the partners. In the early stages, the relationships of the firm's partners are good and smooth.
But this relationship can be hostile if the partnership is not well managed by partners. Therefore, you
should seek advice from a company secretary or legal practitioner before making a decision to
establish a partnership firm.
1.5 POWERS AND LIABILITIES
In a partnership firm, each partner needs to know or be informed of their rights and responsibilities.
Hence, partners in the partnership firm have relationships with:

outsiders or with third parties, and

other partners in the firm.

The Partnership Act 1961 includes liabilities in two forms;- contractual obligations and civil offenses.
The liability of a partner due to the actions of another partner is reversed in both forms of liability. In
a common law, the law of partnership is a branch of the general law of the agency, ie the relationship
between the agent and the principal. The principle of this agent and principal relationship exists
because the agent has a fiduciary liability to its principal but the principal has no fiduciary liability on
the agent. Pursuant to section 7 of the Partnership Act, each partner is an agent or representative to
another partner and the power of this partner is a joint venture firm. Specifically, this section 7 sets
out the powers of the partners as follows:

"Each partner is a representative of his firm and his other partners for the purpose of the partnership
business: and the actions of every partner who undertakes any action to carry out in the usual manner
the nature of the business undertaken by the firms that he is a member is binding his firm and his
partners, unless the act does not actually have the power to act for the firm in certain matters, and the
person with whom he is dealing knows that he has no authority or does not know or believes that he is
a partner. "

In other words, each partner is not only an agent but also a principal, so each partner's liability is
shared equally with other partners. For example, if Ali, Bala and Chong are three business partners
and Ali makes a purchase order from Diana and Diana. Ali have already sent the item but he didn’t
receive the payment from them. How can Diana claim payment from Bala and Chong? Since Ali was
an agent to Bala and Chong who was also his principal, then Ali's actions could involve Bala and
Chong in any contract provided. Ali was acting in his jurisdiction.

Often there is a dispute among partners when there is no such understanding as before, especially
when business has begun to show results. By the way, there is a tendency for partners to dismiss or
release another partner. However, there is no specific provision in the law of partnership to dismiss or
remove a partner, unless it is stated in writing in the partnership agreement. Section 27 sets out the
eviction of a partner as follows:

"A partner cannot be evicted from a partnership by a majority of the partners unless the power to do
so is given by an express agreement between the partners".
To ensure that the business can be carried on prolonged, the partnership agreement must state clearly
that the partners may be dismissed by other partners if the counterpart conducts conflicts with the
interests of businesses like doing the same type of business without the permission of other partners or
commit offenses against the law (eg white-collar crime). The partners who commit the offense should
voluntarily withdraw without the need for other partners to take action to dismiss them.

The rights and obligations of fellow partners may be formed in partnership agreements. The
relationship between the partners in the firm is specified in Part IV, section 21 to section 33 of the
Partnership Act. Section 21 states that:

"The rights and obligations of fellow partners either determined by agreement or provided by this Act,
may be varied with the consent of all partners, and this agreement may be expressly or inferred from
the course of a business".

In this provision, there are two expressions of the rights and obligations of the partners: whether
subject to a partnership agreement or in the absence of such partnership, then the Partnership Act
applies on its own. In other words, if there is no partnership agreement amongst the partners, the rules
and provisions embodied in the law are applicable. This provision also allows partners to amend the
partnership agreement or provisions in the Act with the consent of all partners.

Since the partnership firm belongs to a "good" kind, companionship partners must be honest with
other partners as well as the firm. The principle of honesty is recognized by the common law as well
as in the Partnership itself. Specifically, sections 30,31 and 32 specify the need to be honest among
the partners. Requirements include:
• partners are required to provide the correct account
• partners need to submit to the firm any benefits it receives.
• Managed affairs after the partnership is disbanded for the death of a partner.
• Partners can not carry out similar and separate businesses with the business of firms; he must deliver
to the firm all the gains he earns from the business.