Issues In Professional (General) Partnerships
Observations for purposes of Marketing of
Life Insurance & Family Takaful
1.
Partnerships
must be registered with their respective professional bodies with whom the
individual partners obtain their annual practicing certificates or licenses, example,
lawyers with the Bar Council and doctors with the Malaysian Medical Council.
Partnerships are not required to register with the Companies Commission
of Malaysia (CCM or SSM).
2.
Partnerships
are regulated by the Partnership Act 1961 (revised1974) which provides for the
general rules that apply to partnerships. However, a partnership may have an
agreement among the partners on specific matters relating to their practice and
business operations. In practice however, most partnerships do not enter
into such agreements. This is mainly because of the “trust factor” among
the partners when they start their practice.
3.
Although,
some partnerships may have an agreement amongst themselves, they usually do not
provide for the arrangements if death occurs to any one partner, as well as the
benefits that would be payable to the deceased’s estate, and incidental matters
relating to these issues.
This matter
usually becomes a serious dispute between the surviving partners and the
deceased partner’s family. Such disputes are not often heard by the public nor
are they disputed in the courts. This is simply because there is no agreement
among the partners that addresses this issue and there is no formula as how to
provide for compensation to the deceased’s estate.
In most cases,
especially, in long standing and established practices, the surviving partners would
want to continue their practice and business. In almost all cases, the
deceased’s estate will eventually accept whatever the surviving partners pay
them as compensation, as they would hardly have any bargaining power.
4.
Sections 35 (1) of the Partnership Acts states as
follows: Subject to any agreement between the partners, every partnership is
dissolved as regards all the partners by the death or bankruptcy of any
partner.
In the simplest
terms, this means, that if partners do not have any agreement that
provides for the continuation of the partnership, it must be closed (dissolved)
and wound up.
However, as often
seen amongst partnerships, although there is no agreement as such, the death of
a partner does not lead to the partnership being dissolved. Why is this so?
This is because the “agreement” has been entered into by the surviving partners
and the deceased partner’s family (or estate).
As stated above,
the essence of this “agreement” is that the estate has agreed to receive a
certain sum of moneys as compensation and agrees to surrender any interest in
the partnership thereafter.
How
do we resolve these issues?
i)
The
answer lies in ensuring that there is an agreement amongst the partners during
their lifetime.
ii)
The
main objective of such an agreement is to buy out the interest of a partner
should he suffer death or total permanent disability (popularly known as Buy-
Sell Agreements).
iii)
The
agreement should provide for a definite sum or a formula to provide for compensation
upon death or total permanent disability of a partner.
iv)
The
mechanism of creating these funds is by life insurance or family takaful
contracts on each partner’s life.
v)
There
are several other incidental matters that will have to be addressed and
provided in these arrangements. These include the paying of premiums or
contributions, and any tax implications.
vi)
The
agreement will have to be prepared by a lawyer who has sufficient knowledge and
experience in these arrangements.
Notes:
· Individual
partners may have their own insurance policies or takaful contracts but that is
not the relevant for purposes of “compensation” when surviving partners take
over the partnership.
· General
partnerships must be distinguished from Limited Liability Partnerships (LLPs)
which were introduced in Malaysia in 2012.
