Partnership Act: rules you should be familiar with before getting into a business partnership

Just to be clear, under the law a partnership only exists when duly registered and not just by virtue of jointly owning property, or sharing of returns. Additionally, even when partners agree to pay someone a cut from the profit share of a company as remuneration or debt; it does not automatically qualify them as partners.

Rules governing partnerships in Kenya

Acts of one partner bind the whole firm

When one partner acts by making decisions on behalf of the firm, everyone in the partnership is bound by those decisions. This stands unless that partner has no authority to make those decisions and the person he/she has dealt with knows they don’t have the authority. Additionally, their actions won’t apply if the person they have dealt with does not believe them to be partners.

Use of firm’s credit for personal use

When a partner uses the credit of the firm to get money for personal uses other than the ordinary business of the firm. Then collectively the firm is not bound unless that partner has been authorised to do so. However, this does not include any loss incurred by an individual partner.

Liability of partners

All partners are liable to all debts and obligations of the firm, however, when a new partner is administered they are not obliged to anything that was agreed upon before they were enjoined as partners. In case of death, his assets are still liable for the debts and obligations that remain unsettled.

Responsibility of minors to partnership obligations

In case one was admitted into a partnership while below 18 years old, then any obligations made by the partnership do not personally affect him. However, upon reaching 18, they are supposed to publicly give a notice that they are no longer a party to that partnership. Otherwise, any actions made by the firm will affect them personally. This is especially important for minors who’ve inherited a share in a company and are not aware of the company’s dealings.

Misuse of money or property received for the firm

If a partner receives a payment or property for any reason in their capacity as a partner, then misuses it or uses it for personal reasons. The law will require the entire firm to pay for the loss even if no one else knew about it. This is why the trustworthiness of the person one chooses as a partner should be next to none.

Liability of outgoing partners

A partner who retires from a firm will only be liable to those dealings and debts that occurred when they were still partners. Additionally, a retiring partner can be exempted from any of these existing obligations by an agreement with the creditors involved and members of the firm (who will have restructured the partnership in response to the retirement).

Property bought with partnership money

Any property acquired with money from the partnership automatically belongs to the firm and not individuals, this is so even if one partner acts without the knowledge of others.

Rules governing rights and duties of partners

When forming a partnership, concerned parties are required to submit a written agreement that stipulates their individual rights and duties. However, in the absence of this, the Partnership Act of Kenya will come into force. Under the act, all partners have equal rights and share equally in capital, losses and profits.

If a partner later contributes any money to the partnership beyond what they each agreed to contribute, then it is considered a form of loan and will be entitled to a six percent interest per year from the date the money was issued. On the other hand, unless the availability of profits is confirmed then no partner is entitled to interest on the capital they’ve contributed at the beginning of the partnership.

Additionally, every partner has the right to take part in the management of the partnership business, but no one is entitled to remuneration for working in the business unless agreed upon. Additionally, in case of disagreements, if a majority of the partners are present, the decisions they make stand but changes to the nature of the partnership cannot be done without all partners present.

Expulsion of a partner

No matter the reason, no partner-even if they are in majority, has the power to expel a fellow partner unless the power to do so has been given by an agreement between everyone concerned. Thus, whenever you get into a partnership, do realise that once admitted, you can do little to kick out a partner who doesn’t work out.

Partnerships can extend beyond individuals to organisations, here is how big businesses can collaborate with start-ups to remain competitive



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