Based on the situation given, Karim and Azmi formed and association and they agreed to share profits and losses in equal shares. But their contract provides that Karim will have sole control, supervision and management while Azmi will be as a sleeping partner.
The main issue in this situation is whether a sleeping partner is a partnership or not. What is sleeping partner? Firstly, to relate this situation whether or not a sleeping partner is a partnership we must look first at the section 3(1) which this section defined the meaning of partnership.
Section 3(1) provided that :
(1) Partnership is the relation which subsist between persons carrying on business in common with a view of profit.
There is 3 elements in section 3(1) . 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...