# Partnership in Malaysia: The Structure Most People Should Avoid

> What a conventional partnership actually exposes you to under the Partnership Act 1961, and why an LLP or a Sdn Bhd is usually the better answer.

- Category: business
- Language: en
- Status: published
- Updated: 2026-07-20
- Canonical: https://negaraku.md/en/business/partnership-malaysia

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Two friends register a partnership because it costs RM60 a year and nobody
mentioned an alternative. Three years later one of them signs a supply contract
the other never saw, the supplier goes unpaid, and the supplier sues — both of
them, personally, for the whole amount.

That is not a horror story. That is the Partnership Act 1961 working exactly as
written.

## What a partnership actually is

Section 3(1) of the Partnership Act 1961 defines partnership as "the relation
which subsists between persons carrying on business in common with a view of
profit". Note what is absent: any mention of an entity. A partnership has no
separate legal personality. It does not own assets, it does not owe debts, and
it cannot be sued in its own right except as a convenient name for the people
behind it.

The partners *are* the business. Everything below follows from that.

## Why the liability is worse than people expect

Three sections do the damage, and they stack.

| Section | Rule |
| --- | --- |
| s.7 | Every partner is an agent of the firm; acts done in the usual way of business bind the firm and all partners |
| s.11 | Every partner is liable **jointly** with the others for all debts and obligations incurred while a partner; after death, the estate is **severally** liable |
| s.14 | Every partner is liable **jointly and severally** for everything the firm becomes liable for under s.12 or s.13 |

Section 12 covers wrongful acts and omissions by any partner in the ordinary
course of business; s.13 covers misapplication of a third party's money. So if
your partner is negligent, or misapplies a client's deposit, a claimant can come
after you alone for the full sum and leave you to chase your partner.

Section 16 adds a trap for people who are not partners at all: anyone who
represents themselves, or knowingly allows themselves to be represented, as a
partner is liable to whoever gave credit on the faith of that representation.

## Leaving does not clear you

This is the most commonly misunderstood part of the Act.

Section 19(1) protects an incoming partner: joining does not make you liable for
what was done before you arrived. But s.19(2) is blunt — a partner who retires
does not thereby cease to be liable for partnership debts or obligations incurred
before the retirement. Section 19(3) allows a discharge, but only by agreement
with the continuing partners **and the creditors**. A clause in your exit letter
does not bind a bank.

Section 20 adds that a continuing guarantee given to the firm is revoked as to
future transactions by any change in the firm's constitution, absent agreement
otherwise.

## The structure is also fragile

Under s.35(1), subject to any agreement between the partners, **every partnership
is dissolved as regards all the partners by the death or bankruptcy of any
partner**. Section 34(1)(c) lets a partner in a partnership of undefined duration
dissolve it simply by giving notice.

So without a written agreement displacing these defaults, one partner's death,
bankruptcy or bad mood terminates the firm. Contracts, licences and banking
relationships do not automatically survive.

## The twenty-person ceiling still exists

Many guides say the cap on partnership size was abolished with the Companies Act
1965. It was not. **Section 13 of the Companies Act 2016** provides that no
association or partnership consisting of more than twenty persons shall be formed
for the purpose of carrying on any business for profit unless it is incorporated
as a company under that Act or formed under some other written law.

The "other written law" limb is what lets large professional firms operate — they
form under the Limited Liability Partnerships Act 2012 instead.

## Common mistakes

- **Registering without a written partnership agreement.** The Act's defaults then
  apply in full, including dissolution on death under s.35(1) and equal profit
  sharing regardless of who contributed what.
- **Believing "the partnership" is being sued.** It is you.
- **Assuming retirement ends exposure.** Section 19(2) says otherwise, and a
  discharge under s.19(3) needs the creditors' agreement.
- **Confusing a partnership with an LLP.** An LLP is a body corporate under s.3 of
  the LLP Act 2012, and s.4 disapplies the Partnership Act 1961 to it entirely.
- **Thinking the twenty-partner limit is dead law.** It moved to s.13 of the
  Companies Act 2016.

## What's next

If you have already registered a partnership, do two things this week: get a
written agreement that displaces the s.35(1) dissolution default and fixes profit
shares, and price professional indemnity cover against your s.14 exposure.

If you have not registered yet, compare the LLP and the Sdn Bhd first. Both give
you a separate legal person; the partnership gives you a shared surname on a writ.

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**Verification status.** AI-assisted draft, not yet expert-reviewed. Sections cited
are from the Partnership Act 1961 (Act 135) and the Companies Act 2016 (Act 777).

## Sources

- Partnership Act 1961 (Act 135), Revised 1974 — https://lom.agc.gov.my/act-detail.php?act=135&lang=BI (Attorney General's Chambers of Malaysia)
- Companies Act 2016 (Act 777), as at 1 August 2022 — https://www.ssm.com.my/Pages/Legal_Framework/Document/Companies%20Act%202016_Akta%20777_BI%20(1.8.2022).pdf (SSM)
- Registration of Business — Table of Fees — https://www.ssm.com.my/Pages/Services/Registration-of-Business-(ROB)/table-of-fees/Table-of-Fees.aspx (SSM)

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Source of truth: https://github.com/negaraku-md/NegaraKu.md
License: CC BY-SA 4.0