 Definition of a ‘partnership’ should be seen in 2 aspects:

◦ S.3 of PA 1961 – general definition (whether a ps exists or

not will depend on whether S.3(1) has been fulfilled.

◦ This general definition is followed by S.4 which specifically

sets out rules to determine certain relationships that do not
constitute a ps.
 The rules in S.4 for determining whether or not a ps exists are
not exhaustive/complete.

 S.4 lays down certain circumstances which are not ‘prima

facie’ partnerships.

 The ‘prima facie’ evidence means evidence which, if not

balanced or outweighed by other evidence, will suffice to
establish a particular contention i.e. the person is a partner in
the business.
 The rules for determining the existence of ps as set out under
S.4 concerns 3 situations:

1. Joint tenancy and tenancy in common

2. Sharing of gross returns
3. Receipt of share of profits
 S.4(a) : ‘Joint tenancy and tenancy in common’:

◦ Ownership of property by two or more persons, common or

joint ownership does not imply the existence of a ps unless
there are other circumstances which exist which are
evidence of a ps.
 Example:

 If Iman and Hanan own a four-storey shop houses and they

merely share the rental derived from the shop houses and
nothing else, Iman and Hanan are not partners.

 But if I and H run a departmental store in the shop house and

they put in capital and run the business with a view to make a
profits, then they are partners.
 Case: Davis v Davis

 A father left his 2 sons his business and 3 freehold houses in

equal shares as tenants in common. They let one of them and
used the rent in enlarging the workshops attached to the two
houses. They continued to carry on the business. They each
drew out from it a weekly sum, but no accounts were kept.
The rent of the third house was divided between them.

 Held: there was a ps as to workshop business but not as to

the freehold houses.
 S.4(b) – The term of ‘gross return’ means revenue gained
from a venture before any expenses are taken out.

 This rule means merely because a person receives a part of

gross returns, it does not make him a partner. Gross return,
however must be differentiate from net profit. Gross return is
whatever that a business gets, whereas net profits is the
income earned after all expenses have been deduced.
 Case : Cox v Coulsan

 The def was a manager of a theatre and agreed with Mill to

provide the theatre, and pay for the lighting and for the
playbills. The def was to receive 60 % of the gross takings,
while Mill was to provide and pay for a theatrical co. and
provide for scenery and receive the remaining 40%. The plf
was injured by a shot fired by an actor during the
performance of a play at the theatre. She had claimed that
def was also liable on the ground that he was a partner of
Mill.

 Held: Def could not be made liable on this ground because he

was not a partner for the sharing of gross returns which did
not by itself create a ps.
 S.4(c) : the general rule is that if a person receives a share of
the profits, he is prima facie deemed to be a partner of the
firm.

 Under ordinary circumstances, a person receiving a share of

profits is considered as a partner.

 However, when some other facts are connected to the receipt

of such profits, then it may not be a ps.

 The courts will look at the circumstances surrounding the

receipt of the profits to decide whether or not there is a ps.
 There are 5 circumstances pointed out under S.4(c) where
the sharing of the profits does not make the person receiving,
a partner.

 S.4(c)(i) : payments by instalments

 Example:
 If Julie advances RM50,000 to a firm and the firm repays her
by ten monthly instalments of RM5,000 each, Julie is not a
partner of that firm.
 Case : Badeley v Consolidated Bank

 Plf advanced to C a sum of money for the purpose of

constructing rail transport. C assigned his rights to the
machinery and apparatus as security to the plf, and agreed to
pay an interest of 10% on the sum advanced to him from the
net profit which he obtains from the business.

 Held: on looking at the circumstances as a whole, the

advance the plf paid to C is considered as a secured loan,
and although the plf receives a share of the profits from the
business, he is not considered as a partner of C.
 S.4(c)(ii) : payment of servant or agent

 Example: Pak Long is a salesman for Long Life Magazine

Sdn Bhd and he is paid 5% of the profits of the co. makes out
magazines sold by him. Pak Long is not a partner.

 This rule allows servants or agents take part in any project

where they have a share of the profits, but they are not liable
as partners.
 Case: Walker v Hirsch

 The former clerk of the firm, agreed to advance 1.500 pounds

to the firm and that the loan shall be repaid by payment of a
salary of 180 pounds and one –eighth from the net profit.

 Held: from the facts, P was merely a servant and was not a
partner.
 S.4(c)(iii) : Annuity to widow or child of a deceased partner.

 Example: Joe was a partner of Joe, Awie and Associates. Joe

passed away recently. Joe’s widow, Aida and her children,
Peter and Jane, received from the firm an annuity which is a
portion of the profits made by the firm. Aida and her children
are not partners of the firm even though they receive part of
the firm’s profits.
 Case: Commissioners of Inland Revenue v. Lebus’s Trustees

 A deceased partner in his will bequeathed his share of the

profits in a firm to his wife. The widow’s share of the profits
was not paid by the continuing partners and was in that year
surtaxed by the Inland Revenue.

 Held: on the facts, 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 have not been
surtaxed.
 S.4(c)(iv) : Loan given with a rate of interest varying with
profits.

 Example: Manan lends RM30,000 to Abu who intent to

operate a chain of burger stalls. M enters into a written
contract with Abu that M will be repaid RM30,000 as well as
10% interest on the said sum if the profits derived in a year
exceed RM30,000 and other interest clause. By virtue of this
agreement alone, M is not a partner.
 Case: Re Young ex parte Jones

 A and B entered into a written contract whereby Jones should

lend 500 pounds to Young for his business and in return J
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 B’s partner but A
never exercised this option.

 Held: A was not B’s partner.

 S.4(c)(v) : sale of goodwill

 Example:
 Kelvin sold his business to Ah Kong Motors together with his
goodwill in exchange for a 40% commission on the profits.

 Kelvin is not a partner of Ah Kong Motors.

 Case: Pratt v Strick

 A doctor sold his practice to a buyer, on the agreement that

he will continue on living at the place of business for another
three months and introduce all his former patients to the
buyer. All the income received and expenses paid for those
three months will be shared out equally between them.

 Held: the vendor / seller of the practice i.e. the doctor was not
a partner of the purchaser as there was no intention that a ps
was to be established.
~Thank you~