Tuesday, April 15, 2008

Corporate and Partnership Law - Lesson 1

Definition of partnership

  • Section 3 of the Partnership Act clearly defines what is partnership
  • There are basically 3 elements of partnership that can be find in Section 3 (1) of the same act
  • This elements are; carrying on business, in common, and with a view of profit
  • The word 'person' in the act refers to both natural and artificial person, thus, both individual and corporation are eligible to form partnership
  • Partnership need to be form in a contract agreement be it express or impliedly, hence, partnership and contract are closely related
  • Joint Venture agreement does not necessarily creates partnership.

Ratna Ammal & Anor v Tan Chow Soo (partnership in the form of syndication)
FACT: The contract was made between the parties for the purpose of selling milk. The respondent had obtained the registration of trademark in respect of the milk and other dairy product.
ISSUE: Whether the trademark obtain by the respondent will be vested in into the partnership
HELD: Partnership exist between them but from the agreement, the trademark will remain with the respondent

Chooi Siew Cheong v Lucky Height Development Sdn Bhd & Anor
HELD: To determine whether a partnership exist in a joint venture agreement, it depend on the intention of the parties, hence, in this case the intention was to create a separate business, therefore there is no business in common with a view of profit

Au Yong Wai Choo & Ors v Arief Trading Sdn Bhd
HELD: Section 4 of the Partnership Act will be used in determining whether partnership exist and not exhaustive. To determine the issue, the court will have to considered all surrounding circumstances including written or oral agreement as well as the conduct of the parties

Elements of Section 3 (1) of the Partnership Act

1. Carrying on Business

  • The law says that to fulfill this agreement, there must be a series or repetition of act which constitute business (continuity in business transaction)
  • If there is no series of act, then there will be no partnership (Smith v Anderson)
  • Intention to do business in continuity alone is sufficient to satisfy this element
  • However in Mann v D'Arcy, the court decide that the only act of buying and selling potatoes was held to be carrying out business in partnership, but the circumstances of the surrounding need to be considered

Keith Spicer Ltd v Mansell
FACT: The defendant and Mr. X plan to have a business in the form of a limited company. Prior to the incorporation, Mr. X order goods from the plaintiff's company (supplier) intending to used it in the company's business. The goods were delivered to the defendant's address. The defendant and Mr. X had open an account in the name of of the proposed company, but the account was never used by them. Mr. X subsequently become insolvent and the supplier sued the defendant for the price of the goods on the ground that the defendant and Mr. X were carrying on business together
ISSUE: Whether parties who get together to form a company will be considered as partnership or not
HELD: The fact that they were working together to set up a company does not make them doing business with a view of making profit, hence, there is no partnership agreement

2. Doing business in common

  • Business must be made jointly between partners
  • Alternatively, business can be made on behalf of all of the partners
  • It is not important to whom handle the business
Checker Taxicab Ltd v Stone
FACT: Taxi owner hired a driver on the basis of daily contract. Based on the agreement, the driver had to bear the cost of running the taxi but at the same time he is permitted to used the facilities of the owner's garage. It was also agreed that the driver had to return the taxi in good condition and pay the owner of the perceantage of the daily income
ISSUE: Whether they are doing a business in common or together
HELD: Even though there is a kind of relationship between the owner and the taxi driver but it did not satisfied the element of partnership

3. With a view of profit

  • The business must be made for the purpose of making profit
  • The activity made by non-profitable organization such as for charity does not create a partnership
  • In the case of Re Spanish Prospecting Co. Ltd, the profit means the parties has to be agreed on the net profit

In conclusion, in order to established partnership, the 3 elements stated in Section 3 (1) needs to be fulfilled. Nevertheless, the surrounding circumstances need to be considered in determining the existence of partnership

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