Dec 20, 2007

Business Law Tutorial 10

1. Partnership is defined in Section 3(1) of Partnership Act, 1961 as a relation which subsists between persons carrying on business in common with a view of profit.

Business is defined in Section 2 Partnership Act, 1961 as every trade, occupation or profession.

Section 3(2) Partnership Act, 1961 specifically excludes co-operative societies and registered statutory and chartered companies.


2.A partnership can be formed with or without a written agreement. It can be created orally or in writing.

It is easier to form than a company. The minimum number of members is 2. Section 47(2) Partnership Act, 1961 provides that there cannot be a partnership of more than 20 persons.


3. There can be a partnership between a minor and an adult. A minor can be a partner for any duration of time until he wants to cancel it. A minor cannot liable for any debts of the partnership until the age of majority. On the age of majority, a minor can, if he wishes, discharge himself from all future debts of the firm by terminating the partnership. Failure to repudiate the agreement will make him liable for the partnership debts.


4. [The whole section of liability in notes.]


5.(a) Advantages

Wider capital base – as more partners contribute to the capital of partnership;if compared to the sole trader, of which the capital solely from him himself.

Different skills – Each partner has different skills and knowledge in operating the partnership; in sole trader, only the owner contributes his skills.

Losses can be shared equally – as partners re jointly liable; in sole trader, the owner bears all the losses.

Divide workload – The more partners enables the segregation of work to different partners depending on their skills and knowledge; in sole trader, the owner has to work all by himself.

Easier to get bank loan – partnership is more organized as compared to sole trader.


Disadvantages

Be liable for debts even if other partners cause it – partners are jointly liable for the partnership debts

Not able to work together – as conflicts do exist in between partners, which makes the cooperation with one and other becomes harder

Profits have to be shared – as agreed the profit and loss sharing ratio

Hard to change the nature of the business – as you need the agreements of all the partners on the issue.



5. (b) Advantages

Easy to perform – less rigidity in procedure to performance in a partnership, rather than in company.

Less formalities – obligations for the company to abide to the extensive rules and regulation set by the government.

Easier to change the nature of business – only needs majority of shareholders to agree.


Disadvantages

No separate entity – the partnership can sue of be sued through partners

No perpetual succession – once the partners leave and unable to replace the partners, the partnership will end

Unlimited liabilities – personal assets will be liable for the partnership debts, if needed so.

Limited capital base compare to company – company can raise capital through issuance of shares and debentures but partnership only can raise capital from the partners


6. [ Refer notes – Termination of partnership ]


7. (a) Section 3(1) Partnership Act, 1961 defines partnership as a relation which subsists between persons carrying on business in common with a view of profit. In this case, Syarikat JJ is a partnership because it is a food catering business, for a view of profit.

Under Section 47(2) Partnership Act, 1961, a partnership cannot be more than 20members. Here, Syarikat JJ only have two partners, therefore it is a partnership.

Partners are jointly liable in civil cases but not so in criminal cases – Section 11 Partnership Act, 1961 and Section 14 Partnership Act, 1961. Here, it is a civil case. Therefore, it binds Jill.

According to Section 7 Partnership Act, 1961, as partners are agents of partnership firm, any act or omission committed by one partner binds the rest of the partners if it is carried out within the ordinary scope of the firm’s business. In this case, Jack took the loan within the ordinary scope of the food catering business. Therefore, it binds Jill.

Under Section 8 Partnership Act, 1961, partners are bound by acts on behalf of firm. In this case, Jack took the loan on behalf of Syarikat JJ to develop its business. Therefore, Jill is liable for the loan. Section 9 Partnership Act, 1961 provides that if the partner uses credit of firm for private purposes, the firm is not bound but that particular partner will be personally liable. Here, Jack borrowed the loan to buy some cooking equipment for the business. It is not for his personal purposes, thus, Jill is liable.

For a third party to hold the partnership firm and partners liable, the following conditions must be satisfied:
  • The act must be done for the purpose of the business of a partnership
  • The act must be done in the firm’s ordinary course of business.
  • The act must be done by the partner as a partner of the firm and not in his own personal capacity.

In this case, Jack borrowed the bank loan for the benefit of the partnership business and within the ordinary scope of partnership business, and not for himself. Therefore, the 3 conditions are satisfied.
Section 10 Partnership Act, 1961 provides that if the third party has noticed of the partner acts on behalf the partnership is lack of authority by the time the act is carried out, the partnership is not binding to the act done in contravention of the agreement. In this case, Moni Bank as a third party has not noticed Jack lack of authority to act on behalf of Syarikat JJ, therefore Moni Bank can sue Jill and the partnership firm liable for the loan.

7. (b) Under Section 11 Partnership Act, 1961 and Section 14 Partnership Act, 1961, the partners are jointly liable in civil cases but not so in criminal cases. Here, it is a criminal case, therefore Jill and partnership firm are not liable.

3 comments:

  1. wow..
    All Business Law pulak.. haha..
    Share la some of your stories.. hee..

    ReplyDelete
  2. Meg Meg8:12 PM

    Ur question 7 (a) and (b) looks weird and seems not correct...

    ReplyDelete
  3. for meg's information...
    although it looks weird
    but that's how ms pari said in tutorial class...

    it is up to you...
    i am not professional...
    so no professional negligence...

    maybe i should add a disclaimer here...

    ReplyDelete

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