Partnership Law in Malaysia – Full Partners vs. Non-Full Partners

Introduction

In business, titles often conceal more than they reveal. Few words illustrate this better than “partner”. Within corporate or professional practice, it is commonplace for individuals to be introduced as “partners”, even though their legal status may not meet the requirements of partnership under Malaysian law. This is not simply an academic distinction – the use of the title can have significant consequences for liability.

The governing statute in Malaysia is the Partnership Act 1961 (“PA 1961”). Rooted in the UK Partnership Act 1890, it codifies much of the pre-existing common law of partnership. Section 47(1) of the PA 1961 explicitly preserves the continuing application of equity and common law except insofar as they are inconsistent with its provisions. English cases, while not binding, remain “useful and persuasive” in Malaysia, as recognised by the Supreme Court in Khoo Yoke Wah v Lee Choo Yam Holdings Sdn Bhd [1991] 1 MLJ 414

This article examines the essential criteria of a partnership under Malaysian law, explains the duties and liabilities imposed by statute, and analyses the treatment of non-full partners such as salaried or commissioned partners. Drawing upon recent and leading cases – including Dev Kumar Sri Ram v Puung Kok Peing [2024] 8 CLJ 724, Malaysian International Trading Corp (Japan) Sdn Bhd v Bentini SPA & Ors [2014] 5 CLJ 983, and Tetuan Baharuddin Ali & Co v Seneba Crystar Sdn Bhd [2025] 1 SMC 187 – this article seeks to clarify the legal meaning of partnership in Malaysia and its practical consequences.

Historical and Comparative Context

The PA 1961 was initially modelled on the Sabah Partnership Ordinance 1961, itself based on the UK Partnership Act 1890. In 1974, the statute was extended to the whole of Malaysia by the Partnership (Amendment) Act 1974. Prior to that, the law was scattered across separate statutes in the Malay States, Sabah, and Sarawak.

Malaysia therefore inherited not only the statutory structure of English law but also its fundamental principles. Further, courts continue to look to court decisions from England and other common law jurisdictions.

Elements of Partnership

Section 3(1) of the PA 1961 sets out three cumulative elements:

1. Business between persons;
2. Carried on in common; and
3. With a view of profit.

Section 2 provides that “business” includes every trade, occupation or profession. Courts have interpreted this broadly. However, mere co-ownership of property, receipt of gross returns, or sharing of revenue does not automatically create a partnership (section 4). Only when profits are shared, with corresponding exposure to losses, does the law infer partnership.

The Federal Court in Chooi Siew Cheong v Lucky Height Development Sdn Bhd [1995] 2 CLJ 11 clarified that there must be a single business venture pursued together for profit. A joint venture where parties separately reap individual benefits does not constitute a partnership.

Relations Between Partners and Third Parties

Agency and Authority

Section 7 of the PA 1961 provides that every partner is an agent of the firm and of the other partners for the purposes of the partnership business. Consequently, contracts made by one partner in the ordinary course of business bind the firm as a whole. This principle underpins commercial reliance on partnerships – third parties can generally assume that a partner’s acts are the acts of the firm.

However, the rule applies only to true partners in law. In Tetuan Baharuddin Ali & Co v Seneba Crystar Sdn Bhd [2025] 1 SMC 187, a salaried lawyer styled as a “partner” purported to waive a client’s legal fees. The court held that she did not meet the statutory definition of a partner under section 3(1) of the PA 1961, because she had no equity stake and no exposure to profit and loss. Since she was not a partner in law, she could not rely on section 7 to bind the firm. The waiver was therefore ineffective.

This case illustrates a crucial limit –  agency flows only from genuine partnership status. If an individual is not a true partner under the Act, no amount of title or designation can vest them with authority to bind the firm.

Liability

Insofar as the liability is concerned, the following are key:

1. Debts and obligations: Partners are jointly liable for debts incurred during the partnership (section 11).
2. Wrongful acts: Section 12 makes them jointly and severally liable for wrongful acts of other partners in the course of business.
3. Misapplication of funds: Section 15 imposes liability for client money wrongly handled by any partner.

Thus, the law emphasises collective responsibility. This makes it vital to distinguish between full partners and non-full partners.

Non-Full Partners – Salaried and Commissioned Partners

A salaried partner is remunerated by fixed pay, sometimes with a bonus, but without sharing in profits or losses. A commissioned partner earns on a case-by-case basis but similarly lacks participation in the partnership’s profits.

Whether such a person is legally a “partner” is a question of fact. Courts look beyond labels to see if the section 3(1) elements are satisfied. If not, the individual cannot be held liable for the firm’s obligations.

Case Analysis

1. Dev Kumar Sri Ram v Puung Kok Peing [2024] 8 CLJ 724

The plaintiff, having sold his condominium, appointed Messrs Yuen & Co to hold the balance purchase price of RM920,612.65 as stakeholder. One partner misappropriated the funds and went bankrupt. The plaintiff sued the other so-called “partner”, Puung.

The High Court dismissed the claim, holding that Puung was merely a commissioned partner. He earned fixed commission without profit-sharing, and bore no losses. Since all three elements of section 3(1) were absent, he was not a partner in law. Thus, he bore no liability for the firm’s breach.

This case highlights the limits of “partner in name” liability.

2. Malaysian International Trading Corp (Japan) Sdn Bhd v Bentini SPA & Ors [2014] 5 CLJ 983

Here, a consortium secured a USD180 million contract in Sudan. Financing was structured through 45 sale and repurchase agreements. When the JV defaulted, leaving EUR38 million unpaid, the plaintiff sued.

Bentini SPA, one of the consortium partners, argued it had withdrawn and was only a consultant. The High Court rejected this, holding that:

• The JV was in substance a partnership under s. 3(1);
• Bentini continued to be “held out” as a partner;
• Payment of consultancy fees, pegged to project success, did not alter its status.

This demonstrates that substance prevails over form – merely renaming profits as “fees” does not end liability.

3. Tetuan Baharuddin Ali & Co v Seneba Crystar Sdn Bhd [2025] 1 SMC 187

A client resisted paying legal fees based on a waiver letter signed by a lawyer described as a “partner”. The Magistrate Court held that:

• Section 3(1) of the PA 1961 requires business carried on in common with a view to profit.
• The individual was a salaried lawyer with no equity interest and no exposure to profit and loss, and therefore not a partner in law.
• Because she was not a partner, she had no authority to bind the firm, and the waiver was ineffective.

Accordingly, the client remained liable for the full amount of legal fees.

This case underscores how Malaysian courts will pierce through labels. A “partner” in title but not in law cannot exercise the binding authority conferred on true partners.

4. Chooi Siew Cheong v Lucky Height Development Sdn Bhd & Anor [1995] 2 CLJ 11

In this Federal Court case, a landowner and a developer entered into a joint venture to construct housing. Each was entitled to distinct sub-lots to dispose of freely, and the plaintiff later sought to enforce rights against a prohibitory order lodged by a creditor of the developer.

The trial court had treated the arrangement as a partnership under the PA 1961. The Federal Court disagreed, emphasising that:

• A partnership under section 3(1) requires a business in common with a view to profit.
• The joint venture here was structured so that each party pursued its own separate business, taking its share of sub-lots independently.
• There was therefore no “business in common” and no partnership in law.

This decision draws a sharp line between joint ventures and partnerships – joint venturers are not necessarily partners, even if they owe fiduciary duties to one another. It remains a leading precedent on the scope of the statutory definition.

Theoretical and Practical Implications

Substance Over Labels

All three cases confirm that courts scrutinise the true relationship, not the title. A salaried “partner” may escape liability, while a joint venturer styled as “consultant” may still be a partner.

Professional Partnerships

Many firms – such as law firms – often appoint salaried or commissioned partners. This creates risk if clients or third parties assume full partnership liability. Transparency in role definitions is therefore crucial.

Holding Out

Even if a person is not a partner, if they allow themselves to be represented as such, they may incur liability to third parties who rely on that representation (section 16). This doctrine tempers the protection afforded to non-full partners.

Risk Management

To mitigate risks and avoid disputes, firms should:

1. Draft clear partnership agreements;
2. Notify clients of the scope of partners’ authority; and
3. Ensure that only authorised partners can bind the firm in significant transactions.

Conclusion

The law of partnership in Malaysia strikes a careful balance between flexibility of business structures and protection of third parties. The key lesson is that partnership liability is defined by substance, not title.

• In Dev Kumar, a commissioned partner was spared liability because he did not share in the firm’s profits or losses.
• In MITCO v Bentini, a company styled as a consultant was nevertheless deemed a partner because the arrangement was in substance a partnership with a view to profit.
• In Baharuddin Ali, a salaried lawyer styled as a partner was found to be no partner at all, and therefore lacked authority to bind the firm.
• In Chooi Siew Cheong, the Federal Court confirmed that not all joint ventures are partnerships. Where parties pursue separate businesses rather than a single common business, no partnership exists under section 3(1).

Taken together, these cases reinforce the principle that Malaysian courts will look beyond labels, contractual wording, or commercial convenience. They will focus on whether the statutory elements of section 3(1) PA 1961 are satisfied.

For firms and individuals, the practical safeguard lies in clarity – written agreements, transparent communication, and careful use of the partner title. Only then can both firms and clients navigate the law of partnership with confidence, avoiding costly disputes over status and liability.

This article is written by  Raja Nadhil Aqran (Managing Partner) and Nur Ardyana Sofea (pupil). It only contains general information. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such.

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For more information, contact us at info@aqranvijandran.com.