A law firm can come into being in compliance with the Legal Profession Act 1976. As a sole proprietorship.  As a partnership. And in near future even as a Limited Liability Partnership-Incorporated.
 
Partnership practice often comes with a boon.  Or it becomes a bane that goes vroom with a broom into bang and bust.
 
Some partnerships grow.  Others, growl. Some others, gross!
 
Partnerships may whimper, crack, break or go bust for multitude of reasons, or excuses. One reason for sure - a partner’s misconduct.  In particular, dishonest or fraudulent conduct in the discharge of an advocate and solicitor’s duties.
 
A partner’s misconduct may affect one and all partners under the Professional Indemnity Insurance (“PII”) coverage.  Under the PII policy, partners are referred to as principals. Principal means a person who, at any time is or was a partner of the firm. 
 
PII does not indemnify partners who were party to or condoned the misconduct, relating to the claim.  For the rest of the partners and employees, PII indemnifies, to a maximum of RM350,000.00 or the firm’s limit of indemnity (whichever is the lower).  There are of course, provisos for innocent partners to fulfil in order to qualify for cover under the PII.
 
When snuggling under the blanket of a partnership with glee, remember the liability of getting wet in a partnership.
 
The Partnership Act 1961 (“the Act”) brings forth the moment of truth:
 
1.     Liability still exists even in the event of death:
 
Section 11 of the Act, “Every partner in a firm is liable jointly with the other partners for all debts and obligations of the firm incurred while he is a partner; and after his death his estate is also severally liable in a due course of administration for such debts and obligations, so far as they remain unsatisfied but subject to the prior payment of his separate debts.”
 
2.     The act of one partner is the act of the firm, and all the partners are liable:
 
Section 12 of the Act, “Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the firm or with the authority of his co-partners, loss or injury is caused to any person not being a partner in the firm, or any penalty is incurred, the firm is liable therefor to the same extent as the partner so acting or omitting to act.”
 
3.     Liability of the firm for money or properties under the custody of the firm:
 
Section 13 of the Act, “In the following cases, namely: 
(a)  where one partner, acting within the scope of his apparent authority, receives the money or property of a third person and misapplies it; and 
(b)  where a firm in the course of its business receives the money or property of a third person, and the money or property so received is misapplied by one or more of the partners while it is in the custody of the firm, 
the firm is liable to make good the loss.” 
 
4.    Joint and several liabilities of partners:
 
Section 14 of the Act, “Every partner is liable jointly with his co-partners and also severally for everything for which the firm while he is a partner therein becomes liable under section 12 or 13.”
 
Any “socks” for protection? 
Only for rights and duties:
 
Section 21 of the Act, “The mutual rights and duties of partners, whether ascertained by agreement or defined by this Act, may be varied by the consent of all the partners, and such consent may be either express or inferred from a course of dealing.”

For partners of a law firm, every partner once commits to be (i) registered with the Malaysian Bar as a partner of the firm, (ii) signs off and submits the annual partners statutory declaration for the operation of the firm’s Client/s Account, and (iii) registered as a partner of the firm in the PII Schedule for coverage, shall for all legal intent and purpose, irrefutably taken and dealt with as a partner of the firm and not as an employee, legal assistant, or legal associate.  Those trinity of entrenched commitments makes the partner a partner and a principal of the firm notwithstanding jargons and labels such as salaried partner, equity partner, sleeping partner or a snoring partner.
Sneeze.  And all get wet!
 
Partners must at all times take charge of their role in a partnership and diligently see to it that no partner goes wayward and practises dishonesty and/or allows his conduct to be tainted with fraud.
 
While cosying up in a partnership, be awake.
 
Otherwise, when the lights turn on and the blanket is pulled, you will be awakened with the “socks” in your mouth!