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Partnerships Act, Act No. 16 Of 2012

An Act Of Parliament To Govern Partnership Relationships In Business.

  • a limited liability partnership;
  • a corporate body; or
  • a foreign limited partnership

Liability of partners is generally not limited.

For a partnership to be a limited partnership however, it must have at least one general partner with unlimited liability and at least one of the registered limited partners with limited liability.

It can be varied only where that agreement allows it and can be done before or after formation of the partnership.

· Before – consent of all proposed partners required.

· After - seek consent of all existing partners

Default rules are rules applicable to the partnership for issues not provided for in the partnership agreement. When applied it is treated as if the term was in the agreement. It may however be modified or excluded where partners agree or in accordance with the terms of the partnership agreement.

In a General Partnership, each partner is responsible for the business of the partnership and is an agent of the partnership. Sec 7

A General Partnership can;

· Sue and be sued on its own name

· Enter into contracts and own property

· Provide in the agreement for continuity of partnerships even when partners change.

Consent of all partners is required so as to change the business of the partnership.

The capacity of a partnership as a legal person is unlimited. This does not extend to offences provided for in any law. Sec 8

 

No. A partnership cannot employ a partner as an employee of the firm.

  1. Duty of good faith – section 10
  1. A partner should act in good faith towards partnership and other partners in all matters affecting the partnership.
  2. He should keep partners informed of all matters affecting partnership
  3. Account to the partnership any profit he receives on behalf of the partnership without consent of other partners.
  4. Account to the other partners any profit he receives from any business he conducts without consent of the other partners and that competes with the partnership.

N/B; this applies even where the partnership has broken up as long as it has not been dissolved or wound up.

  1. Duty of disclosure – section 11

Before forming a partnership, one must disclose to an intended partner anything that may influence that partner’s decision to join the partnership or not. The same applies to existing partners looking to admit another partner. The incoming partner has the same duty to the existing partners.

 

o A partners shares equally in profits of the partnership and contributes equally towards its losses from the time they became partner. In case of a dead partner, his estate is liable for his obligations.

o Partner not entitled to remuneration from the partnership.

o He may be indemnified for payments made in ordinary conduct of the business. If not indemnified, he may claim the payment from the other partners just like a debt.

o A partner may contribute capital to the partnership. He is not entitled to interest on that contribution.

o A partner is entitled to take part in management of the partnership.

o Decision making in the case of ordinary matters is by way of simple majority. Otherwise, it is by unanimous decision of all partners.

o Every partner should ensure proper accounting records of the partnership are kept and are available for partners on request.

 

An act done by a partner who is carrying on the business of the partnership binds the partnership. Exceptions

· The partner has no authority to act and the third party involved is aware of this

· The partner has no authority to act and the third party involved does not know or belief that the partner is a partner

 

® Refers to any rights and interests in property;

§ acquired on behalf of the partnership

§ for the purpose of the partnership

§ in the course of business of the partnership

§ acquired on behalf of the partnership

® Partnership property or capital is held in trust for the partnership by the partner who acquired the property or contributed the capital.

® Land acquired out of partnership profits is co-owned by partners and is not partnership property.

® Execution of deeds in a partnership is done by;

· At least 2 partners to sign with authority of all other partners of if a limited partnership then general partner with authority executes.

· Stated that execution is on behalf of the partnership

· Delivered as a deed

 

Partnership is liable for loss or injury caused by wrongful act or omission of partner to another person who is not a partner as long as the partner was acting in ordinary course of business and with authority of other partners.

A partner who has unlimited liability is personally liable for obligations of the partnership where court has made judgement against the partnership. This may not however be enforced not enforceable against the property of the partner.

Non partners who act or misrepresent themselves as partners to third parties who rely on this misrepresentation are personally liable as partners to the third party.

 

® New partners – express or implied consent of existing partners required

® Ceasing to be a partner – where partner dies, is expelled, partnership is dissolved, court makes order for his removal or person goes bankrupt.

® Resignation of partner – give other partners at least 3 months’ notice.

® A majority of partners may also expel a partner. Notice of at least 3 months required.

® Liability of a former partners for obligations incurred while they were a partner persists even after he ceases to be a partner.

® A former partner should be indemnified for payment made by the partner to discharge the whole or part of his personal liability for a partnership obligation.

® Former partners must transfer partnership property held in their name to the partnership or the partnership’s trustee.

® A former partner is not liable for obligations incurred by the partnership if it continues to use the same partnership name or continues to include the former partner in the list of partners.

® A partner may assign his share to another person called the assignee where all other partners agree. The assignee only shares in the profits the partner would be entitled to, and in dissolution gets what the assigning partner would have been entitled to.

® The assignee does not participate in management of partnership and cannot inspect its records.

 

A partnership may break up because of the following reasons:

§ the number of partners falls below two;

§ the partnership is for a fixed term and the term expires;

§ an order to break up the partnership is made by the Court on the application of a partner;

§ where the Minister thinks it should be broken up and proceeds to apply to court

§ Court on considering the Minister’s application gives an order for it to be broken up

A partnership whose term is not fixed or where fixed but at least one partner has ceased to be a partner may be dissolved if at least half the number of partners decide that the partnership should be dissolved.

A partnership that has broken up still needs to carry on business for the purpose of dissolution and winding up. Rights and obligations of partners continue even in this period.

A person who voluntarily ceases to be a partner in a partnership may publish a notice of this fact with necessary consent of other partners.

 

Where a partnership has broken up, one or more partners may wind it up by using the following rules to distribute partners’ assets.

· All partners to pay the partnership what they owe to it.

· Partnership to pay all debts to other persons apart from partners

· Partnership to pay partners amount owed but exclude their capital contribution, unless there was an amount owed.

· Partners share surplus assets using the proportion of their entitlement to profits.

· If partnership is unable to pay debtors, partners should contribute the deficit

· Partnership may transfer its remaining assets to partners where it cannot pay them the capital they contributed

A partnership that breaks up stands dissolved where;

§ all partnership property is distributed to persons entitled to it;

§ any trust property has been transferred to the owner or the owner’s trustee

§ no liabilities are outstanding against the partnership;

§ no claims are outstanding by or against the partnership; and

§ if a provisional liquidator has been appointed by court, the liquidator has ceased to hold office without being replaced.

 

® A creditor who has gone to court and obtained judgement against the partner may apply to court seeking to have that partner’s interest in the partnership profits and property charged. This is to facilitate payment of the debt that partner owes to the creditor.

® Court may also make an order removing a partner or breaking up a partnership and specify the dates for such removal or break up.

® Court has power to give other directions following the order for removal or break up of the partnership.

® Where court is considering a partner’s removal, it may also order that the partner’s involvement in the partnership be limited pending their final determination.

® Court may also receive an application from the Minister for a partnership to be broken up.

® It further has powers to appoint a liquidator to wind up the partnership and distribute its property.

® A person who joins a partnership whose term is fixed by paying the joining premium may apply to court for refund of the premium if the partnership is broken up before the end of its term.

® Persons interested in the winding up of a partnership may obtain various orders from court;

§ Order for accounts to be drawn up to determine rights of former partners (their entitlement to assets and liability for losses and other obligations)

§ Order that a partner be paid in the interim period

§ Order for security in respect of such payments

§ Order for break-up of the partnership

§ If partnership already broken up, then order for direction on winding up

Refers to a partnership where at least one general partner has unlimited liability and at least one limited partner has limited liability.

 

® A general partner is liable for all debts and liabilities of the partnership.

® A limited partner on the other hand is only liable only to the extent of amount contributed to the partnership.

® One becomes a limited partner by registration and ceases to be one when;

§ He is deregistered as a limited partner

§ Dies

§ Partnership dissolved

® A limited partner does not take part in management if the partnership. If he does he will be liable for all the partnership obligations that occur in the period he is involved.

® A limited partner does not get back the whole or part of the capital he contributed to the partnership.

® Differences arising in the partnership with regard to ordinary matters are decided by the general partner or a majority of the general partners. As for other matters for example authority of a limited partner to act on behalf of a partnership, decision is by the general partner or if many, all of them.

® Admission of new partners is subject to consent of all general partners.

® Winding up of a limited partnership is done by the general partner unless court orders otherwise.

® A limited partner must have and maintain a registered office.

® The name of a limited partnership must have either the words ‘limited partnership’ or ‘LP’ or ‘lp’ at the end.

® Partners of a limited partnership must state the name and the address of the registered office of the limited partnership on any partnership document.

 

Make an application to registrar together with statement specifying;

§ Proposed name of the limited partnership;

§ the names and addresses of the proposed general partners;

§ the name of each proposed limited partner and the amount of capital contribution made by the partner to the partnership;

§ the location and address of the proposed registered office; and

§ if the application relates to an existing general partnership, the date of its formation.

The statement must be signed by the proposed general partner or if many, all of them.

If the Registrar is satisfied with compliance he will register it and issue a registration certificate. This certificate is conclusive proof of compliance with registration requirements, the registration of the limited partnership and proof as to its name.

The Registrar may make rules with regard to the procedures for registration (5th Schedule to the Act is applied)

Any person dealing with the partnership can request it or a partner to disclose the full name of each partner and their address for service.

 

SECTION

OFFENCE

PENALTY

66(3)

Entity carrying on business of a limited partnership under a name not registered as a limited partnership.

Fine not exceeding one hundred thousand shillings.

67(2)

General partner failing to state the name and address

of the registered office of the limited partnership on any partnership document

Fine not exceeding one hundred thousand shillings.

71 (1)

Anyone providing or causing another person provide, false information

Imprisonment for a term not exceeding six years or fine not exceeding one hundred thousand shillings, or to both

71 (2)

Providing, causing or allowing another person to provide, in a notice to the Registrar, changes or corrections while knowing it to be false.

Imprisonment for a term not exceeding six years or a fine not exceeding one hundred thousand shillings or to both.

72

Offences committed under the Partnership Act with consent, connivance or neglect of that corporate’s officer. Both officer and corporate are liable.

Fine not exceeding one hundred thousand shillings,

 

The officer is additionally liable to imprisonment for a term not exceeding six months, or to both.

2nd Schedule paragraph 8 (8)

Liquidator who does not apply to court for a winding up order against the partnership where satisfied that it is unable to pay its debt or apply for court direction where court does not have jurisdiction to make a winding-up order

Fine not exceeding two hundred thousand shillings.

 

Additionally liable for any resulting loss suffered by a partner, a person interested in the winding up, or a creditor of the partnership

2nd Schedule paragraph 9 (5)

Liquidator failing to comply with provisions on annual accounts

Fine not exceeding one hundred thousand shillings

5th Schedule paragraph 5 (7)

General partners failing to lodge with the Registrar a notice of a relevant event within the following 28 days after the change

Each of the general partners liable - fine not exceeding one hundred thousand shillings.

5th Schedule paragraph 5 (8)

General partners continue to fail to lodge with the Registrar a notice of the relevant event

Fine not exceeding fifty thousand shillings for each such offence day continued.

 

N/B: Section 9 of the Act - A partnership is not capable of committing an offence except only where provided in any written law.

 

· receiving a payment contingent on or varying with the profits of a business;

· being an agent of a person engaged in a business where agent’s remuneration is by a share of the profits of the business;

· receiving a debt or other liquidated amount, by instalments otherwise out of the accruing profits of a business;

· a beneficiary of the estate of a person who has died and receives in the form of annuity a share of profits made in a business in which the deceased was a partner;

· lending money to a person engaged in or about to engage in a business and, under the contract for the loan, is to receive a rate of interest varying with the profits of the business or a share of those profits; or

· Selling the goodwill of a business and receiving, in form of annuity or otherwise, a share of the profits of the business in return for the sale.

· Merely sharing interest in a property.

· Merely sharing gross profits of a business

 

 

® Powers of all partners cease on appointment of liquidator

® Persons interested in the winding up of the partnership must cooperate with the liquidator.

® Duties of the liquidator include;

· get in and realise the partnership property;

· pay the debts and discharge the liabilities of the partnership

· distribute any surplus

· ensure that all trust property is transferred to the owners or trustees of the owners.

® Contracts entered into by a liquidator are deemed to have been entered into by partners unless contract states otherwise.

® Court has power to vest property on the liquidator.

® Where the liquidator is satisfied that the partnership is unable to pay its debts, he must apply to the Court for a winding-up order to be made against the partnership.

® If winding up goes on for more than a year, the liquidator must prepare a statement of accounts of the partnership. He also does this once the winding up is complete.

® A liquidator may resign or be removed by court before winding up is complete.

Powers of a liquidator that need approval or sanctions

· Enter into an arrangement with creditors

· Power to compromise on liabilities and questions of assets

· Power to take security so as to discharge debt

· Power to carry on partnership business

Powers of a liquidator that don’t require approval or sanction

· Institute or defend suits on behalf of partnership

· Sell partnership property by public auction or private contract

· Execute documents of partnership

· To claim for balance against the estate of any former partners who went bankrupt or insolvent

· Borrow any money required on the security of the partnership’s assets

· Appoint an agent

· Power to do all other things necessary for winding up the partnership.

Functions of a Provisional liquidator (3rd schedule)

® General duty is to preserve partnership and trust property.

® He can exercise powers of a liquidator with approval of all partners or sanction of court

® Contracts he enters into are deemed as entered into by partners

® He may choose to resign at any time by giving notice of his dealings to court, all partners, persons interested in winding up and the creditor by whose application he was appointed.

Court can appoint and remove a provisional liquidator. When appointed, he ceases to hold office when a liquidator is appointed by court.

 

· Participate on decision to vary partnership agreement

· participate in a decision about whether to approve, or veto, a class of investment by the limited partnership;

· participate in a decision on whether the general nature of the partnership business should change;

· participate in a decision on whether to dispose of the partnership business or to acquire another business;

· participate in a decision to remove or add partners

· participate in a decision to end partnership

· participate in decisions regarding winding up of partnership

· approving the accounts of the limited partnership

· can be engaged under a contract in the limited partnership but not for management purposes

· enforcing a partner’s rights under the partnership agreement

· acting as a director or employee of, or a shareholder in, a corporate general partner

· take part in decision involving conflict of interest between limited partners and general partners

· discussing the prospects of the partnership business;

· consulting or advising general partners, about the activities or accounts of the limited partnership

 

Registration of Changes and Corrections

The Registrar must be notified when any of the following happens;

· To change the name of a limited partnership

· To change registered office of the partnership

· Where a new partner is admitted

· Where a person ceases to be partner other than by death or dissolution of the partnership.

· when the address of an existing general partner of the partnership changes;

· when there is a change in the amount of the relevant capital contribution of a limited partner of the partnership.

Cancellation of Registration of Limited Partnerships

The Registrar may cancel it under two circumstances.

· on application by partners

· after conducting an inquiry on the partnership

A deregistration warning/notice is published in the Gazette 3 months prior to deregistration.

A notice is also published after it is deregistered.

A cancelled limited partnership that carries on business as a general partnership and is later re-registered as a limited partnership can apply to court for the following orders;

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