INTRODUCTION TO

PARTNERSHIP &
COMPANY LAW
(LAW 346)

A STUDENT MANUAL

(FOR UITM TERENGGANU INTERNAL CIRCULATION

ONLY:UPDATED 2020/2021)
 TABLE OF CONTENTS PAGE

1. Introduction to business entities 3

 Sole proprietorship
 Partnership
 Limited liability partnership
 Company
 Differences between companies and other associations
 Advantages of companies over partnerships

2. Partnership 8

 Nature of partnership
 Formation of partnership
 Relationship between partners and outsiders
 Relationship between partners inter se
 Dissolution of partnership

3. Company Law 29

 Nature and formation of companies

 Types of companies
 Legal personality and the nature of limited liability
 Lifting of the veil of incorporation

4. The Company Constitution 43

 Memorandum of Association (MOA)

 Corporate capacity and the ultra vires doctrine
 Alteration of the memorandum of association
 Articles of Association (AOA)
 The legal effects of articles
 Alteration of articles

5. Promotion and Pre-Incorporation Contracts 53

 Promoters
 Pre-incorporation contracts

6. Management of Companies 58

 Director - definition and status

 Appointment, qualification and removal
 Duties of directors and remedies
 Auditor - definition
 Appointment, qualification and removal
 Rights and duties of auditor
 CHAPTER 1

INTRODUCTION TO BUSINESS ORGANISATION

There are 4 types of business organization:

1. Sole proprietorship / sole trader

2. Partnership
3. Limited liability Partnership
4. Company

Sole Proprietorship (also known as Sole Trader)

The Sole Proprietorship business entity in Malaysia is owned solely by one individual,
as his/her liability is unlimited. Unlimited liability means, if a business fails or is
declared bankrupt, the creditors can sue the sole proprietor’s owner for all debts owed
and can obtain a court order to claim against his personal assets.

Advantages of a Sole Proprietorship Business Entity

1. Less paperwork & additional formalities (registration is easy, fast and fewer
documents are needed)
2. Price of entity formation is much cheaper and is not required by the Malaysian
government to be audited.
3. Not required to disclose financial statements to the public.
4. Easy to convert into limited company (SDN BHD)

Partnership

Partnership is defined by section 3(1) of Partnership Act 1961 as “the relation which
subsists between persons carrying on a business in common with a view of profit”.
It is an agreement of two or more persons associated together for the purpose of
conducting a business. In a partnership, there are at least two persons. There also will
have joint responsibility for partnership debts and liabilities.

Limited Liability Partnership (LLP)

A limited liability partnership (LLP) is a partnership in which some or all partners

(depending on types of partner) have limited liabilities. Thus, it exhibits the elements
of partnerships and corporations.

Limited Liability Partnership (LLP) is an alternative business regulated under the

Limited Liability Partnerships Act 2012 which combines the characteristics of a
company and a conventional partnership. An LLP has to be registered via the MyLLP
portal.
 The LLP business structure is designed for all lawful business purposes with a view to
make profit. LLP may also be formed by professionals such as Lawyers, Chartered
Accountants and Company Secretaries for the purpose of carrying on their
professional practice. The LLP concept will also support startups, small and medium
enterprises (SMEs) to grow their businesses without having to worry too much on their
personal liabilities, personal assets and strict compliance requirements.

Company
According to section 2 of the Companies Act 2016, ‘A company is incorporated
pursuant to Companies Act’.

A company is a body corporate or corporation. Once registered, it becomes separate

entity from its members. This rule is known as ‘separate legal entity’ or ‘separate legal
personality’ (or sometimes called the veil of incorporation).

Differences between Company, Partnership, LLP and Sole Proprietorship

Company Conventional LLP Sole Trader

Partnership
According to the According to A body corporate Individual in
1. Companies Act section 3(1) of the and shall have a business on his
Definition 2016, A company is Partnership Act legal personality own or a
incorporated 1961, Partnership separate from its business
pursuant to is an association of partners owned by one
Companies Act and two or more person.
separate from its persons carrying
shareholders and on business in
directors common with a
view of profit

Need to register Register using a Need to register Register with

2. company’s name business name with the Registrar SSM under
Registra- with the Companies which can be done of LLP (Chief Registration of
tion Commission of at any SSM Executive Business Act
Malaysia (SSM) counter Officer) 1956 &
according to the accordance to the Registration of
Companies Act Registration of Business Rules
2016 & Companies Business Act 1956 1957
Regulations 2017 & Registration of
Business Rules
1957
 No maximum The max is 20 Two members There is only
3. number of members except in until no limit one person in a
Number of for public company professional sole
members and for a private partnership, no proprietorship.
company, the ceiling on the
maximum number numbers of
of members is 50 partners

Separate legal No separate legal The partners are No separate

4. entity which means entity status and not liable. The legal entity
Legal the company would unlimited liability. LLP itself is status and
Status & be liable for A partner can be liable for its own unlimited
Liabilities company’s debt. made liable for the debts and liability which
for debts Liabilities borne by debts of the firm. liabilities can extend to
of the directors or personal assets
business shareholders are to of the sole
the extent of unpaid proprietor.
shares only.
Company name Choice of Trade End with Choice of
5. ended with the Name subjected to “Perkongsian Trade Name
Entity word “Sdn Bhd” or ROBA 1956 Liabiliti Terhad” subjected to
Name “Bhd” approval or “PLT” ROBA 1956
Appearanc approval
es
The act of members A partner is a Every partner is A sole
6. cannot bind the principal and agent an agent of the proprietor is
Agency company and other of the firm and LLP but LLP is not an agent of
status member because a other partners only bound by his business
member is not an any act done by
agent to the firm any partner acting
with authority

Must submit No requirement to Not required Not required

7. financial statement submit the
Audit to SSM and financial
accounts required statements to SSM
to be audited. and the accounts
Public will have need not be
access to financial audited.
affairs of the
company.
 Manage by Board Partners take part Managed by Sole proprietor
8. of Directors (BOD) in the management partners and the manages by
Who of the business compliance himself and
manage the officer can employ
business others
By winding up and By agreement Court ordered By the sole
9. liquidation which is between the winding up, proprietor
Dissolution a formal partners. voluntary himself.
and procedures. The Registrar can winding up or The owner
cessation of Winding up - cancel the striking off closes the
business voluntarily by registration if there business /
members or is no business Registrar can
creditors and renewal cancel
compulsory registration if
winding up by High there is no
Court order or business
Striking off renewal
It does not affect Automatically It does not affect Automatically
10. the company dissolves the the LLP because dissolves the
Death or because it has a partnership unless it has a separate business
bankruptcy separate legal entity an agreement to legal entity
the contrary

Advantages of Companies over Partnerships

1. Limited liability - Liability of shareholder is limited. Personal wealth is protected

2. Perpetual succession - Deaths, insanity, insolvency of shareholders or directors
do not affect the company’s existence. The company has continued existence
and is not affected by death, insanity, bankruptcy of any of the shareholders or
directors.
3. Number of member -Private limited company can have maximum 50
shareholders while number of members for public company is unlimited.
4. Easy to transfer of shares - Shareholders can freely dispose of their shares to
anyone at any time at the current prevailing price. In the case of private
companies, the share can be transferred with some restrictions.
5. Employee participation - Employees can acquire a stake in company by
acquiring shares in company. Employee who owns shares would have incentive
to increase the company’s productivity and profitability.
6. Change of directors - The appointment, retirement and removal of directors are
effected in a simple manner and does not affect the company’s continuance.
7. Financing- Companies have the machinery for obtaining additional capital by
issuing unissued shares or debentures, borrowing money and for
amalgamations or merging with other companies.
 8. Transfer of property- Property of company is distinct from that of the
shareholders. Company can buy and sell property regardless of changes in the
composition of its shareholders.
9. Suing members - A company, as legal person separate from its shareholders
can sue any one of its shareholders who owes money to the company.

Disadvantages of a company

1. Control by the Registrar of Company who has extensive powers of investigation

into the affairs of a company.
2. Every company has to file annual returns within one month after the AGM
3. The company had to perform annual audits on its financial statements.
4. At least one company secretary is required to manage its statutory submissions
and returns as well as attending and preparing minutes for board and
shareholders' meetings.
5. Incorporation cost is high, and there are yearly recurring fees to be paid such
as audit, accounting, company secretarial and tax fees.