Partnership in Malaysia: The Structure Most People Should Avoid

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).