Rights and Duties of Partners Notes

Law (Universiti Teknologi MARA)

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 Rights and Du-es of Partners

-Sec 26 provides nine general rules for instance where there is no express agreement governing the partnership:

1. Sec 26(a): 1) All partners must share equally the capital and pro=ts, and contribute equally towards the
Capital and losses.
pro?ts
2) Common law presumpCon: in a partnership, everything is enjoyed or shared equally.
However, enCtlement to capital and pro=t is a maFer dependent on the partnership agreement,
which may be used to rebut the presumpCon that everything is shared equally.

3) Re Albion Life Assurance Society: The legal principle is that in ordinary partnership
businesses, where there is a share of the pro=ts in certain amounts, it could thus be fairly
concluded that the losses would be divided in the same proporCon. Where a partner merely
provided his skill or knowledge, he would have to bear the losses equal to the amount borne by
the partner who made a =nancial contribuCon to the capital.

4) If one of the partners become insolvent and is not able to contribute his share of losses, the
solvent partner is not under any duty to contribute his share of lost capital.

2. Sec 26(b): 1) The =rm must indemnify every partner in respect of payments made and personal liabiliCes
Indemnity incurred by him.
against liability
i) In the ordinary and proper conduct of the =rm’s business; or
ii) From anything necessarily done for the preservaCon of the business or
property of the =rm.

2) Kok Hong Leong Kongsi v Seow Kah Cheng & Anor: Firm had defended acCon brought by 3 rd
party who obtained $1 in damages, with each side ordered to pay their own costs. The COA
held: defending 3rd party’s acCon was preservaCon of =rm’s assets. Thus, partner is enCtled to
receive from partnership expenses incurred in performing the duty.

3. Sec 26(c): 1) A partner making advancements beyond the amount of capital which he agreed to subscribe
Advancements is enCtled to interest at 8% per annum.
made by a
partner to the 2) Applies not only to payments and advances made directly to the =rm, but also to expenditure
?rm incurred on behalf of the =rm. Where the partners have originally agreed to certain amounts to
be contributed by each partner as capital:

-When the sum contributed by one or more of the partners is less, and the full capital is
not achieved, one of the partners may contribute more than the agreed amount.
-The advancement made by a partner above the amount he had agreed to contribute
to the capital is considered a loan, and not an increase of his contribuCon to the capital.
-Thus, interest ought to be paid, but the rate of interest may vary by agreement.

4. Sec 26(d): 1) A partner is not enCtled to interest on the capital subscribed by him.
Interest on
capital 2) This provision allows all the partners to be in equal standing, regardless of whether they
made =nancial contribuCons to the capital or not.

5. Sec 26(e): 1) Every partner may take part in the management of the partnership business.
Management of
the partnership 2) If a partner does not aFend the partnership business, he is considered to have failed in his
business duty, which would allow the partnership to be dissolved.

3) Each partner has the right to parCcipate in the management of the business, except when
there is an express agreement to the contrary.

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 4) Kelly v Tucker: Under the partnership agreement, Tucker was to provide £800 as the only
capital of the partnership, whereas Kelly was to do all the acCve work in the business.

6. Sec 26(f): 1) A partner is to not be paid for taking part in a partnership business. In a partnership where
No partner there are sleeping and acCve partners, an agreement may be drawn up to provide the payment
shall be en-tled of a retainer to the acCve partner.
to
remunera-on 2) However, during the winding-up of the partnership, where one of the partners dies, reCre, or
becomes of unsound mind, the partner or partners leY to sort out the business should also be
compensated.

7. Sec 26(g): 1) No person may be introduced as a partner without the consent of all exisCng partners. If one
Introduc-on of partner refuses his consent, then a person cannot be introduced as a partner.
a new partner
2) However, a partnership agreement can provide that one or more of the partners have the
opCon of introducing a new partner. If there is such an agreement, the other partners are bound
to accept the introducCon of new partner.

3) A person nominated as a partner as allowed under the partnership agreement, has a right of
acCon when other partners refuse to admit him.

4) Byrne v Reid: A father nominated his son as partner as allowed under a partnership
agreement, but other partners refused to admit the son. Later, they agreed to execute all
agreements necessary for his son’s admission, but did not ful=ll their promise. The son sued the
other partners. Held: The other partners were bound by the partnership agreement. Upon
nominaCon, the son was legally a partner and therefore could exercise his rights as such.

8. Sec 26(h): 1) Any di\erences as to ordinary maFers may be decided by a majority of the partners, but no
DiNerences as change may be made in the nature of the partnership business without the consent of all the
to ordinary exisCng partners.
maOers
2) This provision allows the majority of the partners to decide on di\erences over maFers that
may arise concerning the daily administraCon of the partnership. (e.g. hiring of workers, selling
and buying of materials)

3) Although the majority has the power to decide, but they must exercise their power in utmost
good faith, in that they must give noCce and allow the minority a chance to voice their opinions.

4) However, in maFers a\ecCng a change in the nature of the partnership business, all exisCng
partners have to agree. (e.g. changing the type of business carried out, introducing a new
partner)

5) Highley v Walker: Two out of three partners agreed to the admission of one of their sons to
be trained as an apprenCce in the =rm’s workshop. The third partner did not agree and decided
to apply for an injuncCon to prevent the admission. Held: the decision to admit an apprenCce to
be trained in the =rm’s business was an ordinary maFer that could be decided by a majority of
the partners as it did not a\ect a change in the nature of the partnership’s business. Thus, the
partner’s son could be admiFed.

9. Sec 26(i): 1) The partnership books are to be kept at the place of business and every partner may have
Access to access to, inspect, and make a copy of them.
partnership
books 2) Partnership books would include all records kept by the partnership on the =rm’s a\airs (e.g.
accounCng records, and minutes of their meeCngs)

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