First , there must be 2 or more persons carrying on business. Second, the business is carrying on in common and the third is “ the carrying on of business in common with a view of profits”. All of these elements are importance to relate whether Karim and Azmi are carrying on business or not. Therefore, in this situation between Karim and Azmi, clear that they are carrying on business because they formed an association, not merely preparing to carry on business.
The second element of section 3(1) is related to the contract that Karim and Azmi agreed. The contract provide that Karim will have sole control, supervision and management in the association while Azmi will be as a sleeping partner. The words of “ in common” means that that the business of a partnership is to be carry on in common. So, this matter needed or require the involvement of partners in the business, so this means Karim and Azmi are in the same venture together for a common purpose.
But, the requirement for business to be carried on in common does not mean that the partners must participate in the conduct of business, as some partner may be inactive such as Azmi, as a sleeping partner that do not involve in the management of their association. The third elements of section 3(1) is importance to prove which is Karim and Azmi agreed to carrying the business in common with a view of profits. The fact that Karim and Azmi shares profits and losses is very importance consideration to proof that the partnership exist between them.
Beside that, another way to prove whether Karim and Azmi are partnership or not we have to look at the meaning of sleeping partner. Before we look at the meaning of it we should know that actually there is two types of partner which are the active partner and the passive partner. An active or general partner is a partner that take an active part in the management of the business in the absence of any agreement, express or implied, to the contrary. Based on the situation given we can see that Karim is an active partner because he have the sole control, supervision and management to the association.
Meanwhile, passive partners or usually reformed to as a sleeping partner or dormant partner. A passive usually has no say in the administration or management of the firm or in easy words is dormant partners takes no active part in the management of the business. A dormant partner also, is commonly, but not necessarily, a concealed partner. His concealment however does not give him any special immunity from the liability of partners for aspect performed by any partner within the scoped of apparent authority. A concealed partner will be liable in the same way as an “ordinary” partner.
So, in the situation we can see that Azmi as a sleeping partner because he has not involve in the management of the association/ firm, he only provides the capital to the association based on the agreement that they have sign in . Moreover, if we look at the section 26 (e) of the Partnership Act 1961. Section 26(e) give the right to each partner to participate in the business of firm . Section 26 (e) provides that : Section 26 (e) : “ Every partner may take part in the management of the partnership business”.
Although section 26 (e) give the right to each partner to participate in the business of firm. This section actually not applicable to every partner that joined the business. I mean that not every partners have the skill, talent , interest or tendency in the management of the firm. Sometimes, it is better if the management itself need the proper or skilled partners or a manager that have being paid to manage the firm. So, the relation of this section to sleeping partner of a firm may be the persons who are not have skill or fully knowledge of the management of the firm.
So, sleeping partner may only give the capital to support the firm business while the management of the firm will be manage by the partners who have skills and intellectual knowledge of business. Furthermore, if we look at the section 26(e), it is importance to explain the words “may take part” in the management of the partnership business”. The word “may” is not a must or an obligatory to every partner to take part in management of their business. To strengthen my argument, I will support my argument with a few case that relates to a sleeping partners.
In the case of Pooley v Driver, as considered by Jessel M. R. that there could even be a dormant or sleeping partner who neither contributed capital, nor skill nor anything else. If a a dormant/ sleeping partner’s name is neither in the firm’s business name nor registered with the Registry of Business Names, he may not imposed liability on his co-partners, and such a partner cannot be responsible for acts of another co-partner acting outside the scope of his powers. Jessel M. R. lso defined that the dormant partners is a person who does not take an active part in the conduct of the business, and who may be, and often is, prohibiting from takin such part. Meanwhile, in the case of Beckam v Drake, the court held that sleeping partners liable for those acts of his co-partners, which not made in the course of the firm business since the sleeping partner do not known to the outside world as a partner, his act bind the firm where he has no actual authority to do that.
So, from the two cases given we can understand that sleeping partner also is a partnership of the business which a sleeping partner also may be liable in the same way like as an active partner. In conclusion, from the explanation with support from the section and cases given above, Karim and Azmi are partnership based on ground that they have and agreement to share profits and losses in equal shares and there is no doubt that Azmi is a partner of partnership in their association although he is only a sleeping partner.