Discuss the essential of a parnership in light of section 3(1) of the partnership ACT 1961.

"Partnership" is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Persons who have entered into partnership with one another are called individually "partners" and collectively a "firm", and the name under which their business is carried on is called the "firm name". Section 3 (1) of the Partnership Act defines a partnership as follows: Partnership is the relation between persons who have agreed to share the profits of a business carried by all or any of them acting for all. A partnership, as defined in the Act, must have three essential elements:

1. There must be an agreement entered into by two or more persons. 2. The agreement must be to share the profits of a business. 3. The business must be carried on by all or any of them acting for all.

Carrying on business
The Act defines business as including every trade, cccupation or profession section 2 Whilst this definition is not exhaustive, it would seem that an enterprise set up for non commercial purposes would fall outside it. The expression carrying on implies that a business is being cunducted in a regular and systematic manner and that there is some continuity or at least an intention of continuity. Thus , it usually requires repeated acts to constitute a partnership. A single transaction is usually not an activity of partnership.

The element shows the voluntary contractual nature of partnership. A partnership can only arise as a result of an agreement, express or implied, between two or more persons. Where there is no agreement there is no partnership. But a partnership cannot be formed with more than ten persons in banking and twenty persons in other types of business. A partnership with persons exceeding the above limits must be registered under a Companies Act. Partnership is not created by status: Section 5 states that, The relation of partnership arises from contract and not from status. In particular the members of a Hindu undivided family carrying on a family business, as such, are not partners in such business.

Example:

The sole proprietor of a business dies leaving a number of heirs. The heirs inherit the stock in trade of the business including the goodwill of the business but do not become partners until there in an agreement, express or implied, to carry on the business as partners.

Carrying on a business in common

partnership is any form of business that has more than one legal owner and operative, but is not incorporated. The different types are distinguished by what legal limitation is placed on one or more partners in two senses: liability for company debts and liability for the actions of other partners in carrying out the work of the business.

To constitute a parnership , the business of the firm must be carried on, not joinlty, but in common. This means that the business must be carried on by or on behalf of all the partners. In other words ,there must be a commonality of existence. It does not matter that only one or some of the partners actually do the day to day business and that some are sleeping patners.

Partnership is defined by Section 3(1) of the Partnership Act 1961 as the relation, which subsists between persons carrying on a business in common with a view of profit[2]. No person may be a partner with himself. There must be at least two or more persons to form a partnership. Section 3(2) excludes from statutory definition of partnership.

A sleeping partner is one who invests money in a business and takes a share of profits but does not get involved with the day-to-day running of the business. This can happen with both a general and limited partnership, and being a "sleeping" partner does not inherently have any legal force beyond what is included in formal partnership agreements. Such agreements are needed to make clear exactly what say the sleeping partner has in any business decisions.

Every partner is an agent to 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 the usual was 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[13]. . British Homes Assurance Corporation v Peterson [1902] 2 Ch 404.

The above mentioned section states that each partner in an agent to other partner. Each partner when contracting with outsiders are agents and principals at the same time.

The element states the motive underlying the information of a partnership. It also lays down that the existence of a business is essential to a partnership. Business includes any trade, occupation or profession. If two or more persons join together to form a music club it is not a partnership because there is not business in this case. But if two or more persons join together to give musical performances to the public with a view to earning profit, there is a business and a partnership is formed.

With a view of profit

The business in question must be carried on with the view of making profit . This requirement would exclude not for profit organisations from the definition of partnership. Consequently, charitable organizations, social clubs and the like, which do not have profit as their motive, would not fall within the difinition. The term profit is not defined in Act. However, for of the definition the courts have adopted the company law rule tht profit must be net profit namely the difference between gross returns and outgoings. This was made clear in Re Spanish ProspectingCo Ltd (1911) 1 Ch 92 in which Fletcher Moulton LJ observed:

Profits implies a comparison between the state of a business at two specific dates. The fundamental meaning is the amount of gain by the business during the year. It the total assets of the business at the two dates be compared with the ealier date. Represents in strictness the profits of the business during the period in questin.

Aside from the definition of partnership and the requisite there of, the Act has specific provisions which the courts must have regard to ,in determining whether a partnership exists.

As general rule, a person who receives a share of the profits is prima facie deemed to be a partner of the firm but the receipt of such share, or of a payment contingent on or varying in the profit of a business, does not of itself make him a partner in the business. Here

the court has to examine all the circumstances of the cases in order to ascertain the intention of the parties, without giving undue weight to any of such circumstances including the question of the sharing of profit.[10] In Davis v Davis [1984] 1 Ch 393 two brothers held certain houses as tenants in common. They also had a business. They let one of the houses and employed the proceeds in enlarging the business. It was held that they were partners as to the business but not to the houses, and the property acquired for expanding the business was not partnership property.

If one advances a sum of money (RM 25,000) to a firm and receives payment by installments of RM 500 monthly, this does not qualify him as a partner. Payment can be in the form of a salary plus a commission of the share of the profits. This arrangement does not make the recipient to be considered as a partner. Sometimes this category is also known as salaried partner.

General partnerships in the United States, in most cases, are not required to be registered with a state, as corporations or limited liability companies are. Partnerships are governed by either a state's partnership laws, which are a version of the Uniform Partnership Act, or by the partners' specific partnership agreement. How profits are shared is covered in the state laws and, if not changed by the partnership's particular agreement, the partnership will be governed by them.

In Walker v Hirsh[11] plaintiff advanced a monetary sum to H & Co, controlled and owned by two individuals. P signed an agreement with H & Co which included clauses, inter alia, that P would be paid salary plus one eight (1/8) of the profits, and losses and the agreement could be determined with four moths notice. P was previously a clerk and continued to discharge clerical duties in H & Co after the agreement. The firm gave his notice as agreed, in which case he brought an a action claiming to be a partner and demanding the dissolution of the firm. The court held that he was only a servant of the firm and not as partner. as what he claims to be formation to partnership.

The agreement is not required by the partnership Act 1961 to take any special form, though it is usually written. Writing is preferred as it makes it easy to ascertain the right and duties of the partner. In an agreement to form a partnership, as in all contracts, there must be free consent and consideration.

The Partnership Act 1890 defines a partnership as the relationship that subsists between two legal entities carrying on a business in common with a view to profit. Accordingly, for a one to exist, a business must exist, which is carried on by two or more legal persons for profit. There is no single feature of a relationship of itself which will necessarily mean that a relationship constitutes a partnership.

If a partnership does subsist between parties, there is no requirement that the parties have expressly agreed (in writing or orally) that they will be a partnership the status of the relationship is imposed by operation of law.

The element is most important features of partnership. It states that persons carrying on business in partnership are agents as well as principals. The business of a firm is carried on by all or by any one or more of them on behalf of all. Every partner has the authority to act on behalf of all and can, by his actions, bind all the partner of the firm, each partner is the agent of the others in all matters connected with the business of the partnership. The law of partnership has therefore been called a branch of the law of agency.

PARTNERSHIP IN COMPANY LAW DLW0023

NAME: LATCHUMI PERIASAMY MATRIX NO: 012010110649 LECTURER NAME: MDM HAMEDA