GROUP WORK.

(GROUP I)
Running head: PARTNERSHIP.

Partnership definition, rules of determining the existence,

Relationship between partners, partnership agreement, statutory partnership rules,
Relationship between partners and dissolution.
(CMA)Certified Management Accountants of Ontario (2012).
Partnership Act CAP 29 www.kenyalaw.org.
GROUP I.
1. Gabriel Ian Muli.
2. Mary Njuguna.
3. Mercy Kaguri.
4. MaalimHassan.
5. Josphat Maina.
6. Elizabeth Wambui Gitau.
7. Michael Thuo.
8. Chemtai Esther.
9. Faith Muthoka Wanza.
10. Sharon Kiriinya.
11. Samuel Musyoki.
 PARTNERSHIP ACT.
Definition.

A Partnership is the relation which subsists between persons carrying on a business in common with
a view of making profit.

Thus, a partnership is a joint business carried on for profit.

In determining whether or not a relationship constitutes a partnership, the court looks at the
substance rather than the form.

Factors besides sharing of profit that suggest the existence of partnership.

 Contribution of property or labour to the enterprise.

 Guarantee of partnership debts.
 Joint ownership of property.
 Participation in management including having signing authority for contracts and bank accounts
and access to information about the business.
 Holding oneself out as a partner or allowing others to do so.

The legal relationship between partners.

Partners have both obligations and rights pursuant to either statutes or a partnership agreement.

Partnership Agreement.

A partner is a person liable to:

 Funds placed in the Debt and obligation of the partnership incurred while he/she is a partner.
 Negligence and other torts perpetrated by any of the partners acting in the ordinary cause of the
partnership business.
 Misapplication of trust care of the partnership.

Each partner is an agent of the other partners. Therefore actions taken by one partner bind all the
other partners.

Each partner owes fiduciary duty (duty to act honestly and in good faith with a view to the best
interest of the partnership)

Another key feature of a partnership is joint and several liability, it means that each partner is
individually as well as collectively responsible for the entire debt.

Implications of partners being joint and severally liable.

 Each partner is personally liable to the creditors the full extent of his personal assets, regardless
of his partnership contribution and share of profits.
 If a partner insolvent, his or her share may have to be sold to satisfy the claims of personal
creditors which may lead to winding up of the partnership business.
 A partner is only liable for obligations created by the firm while he/she is a member to free
himself/herself or liability ,a retiring partner must notify all persons who have dealt with the firm
and must place an appropriate newspaper advertising for other persons.
Partnership Agreement.

A partnership agreement governs relations of partners within a partnership.

A partnership agreement does not have to be in writing to be legally enforceable unless it extends
beyond one year and performance has not yet began.

A partnership agreement can be created orally or it can be implied from the conduct of the partners.

A good partnership agreement will clearly set out;

 Business agreement.
 Business objectives.
 Partners responsibilities.
 Capital contributions.
 Sharing of profit and losses.
 Procedure of settling disputes (usually by arbitration).
 Provision of efficient and peaceful dissolution.

Generally speaking, partners may agree to whatever terms they wish, provided that the terms are
not illegal and do not offend the public policy.

Implied statutory partnership rules.

1) Sharing of profits/losses -Each partner is entitled to an equal share of profits and is

responsible for an equal share of losses.
2) Reimbursement – Each partner is entitled to be reimbursed for payments made in the
ordinary cause of partnership business.
3) Partnership property –Property bought into the business or purchased with partnership
monies must be held and used exclusively for the partnership.
4) Capital contribution and loans –A partner is not entitled to interest on capital contribution to
the partnership but is entitled to 5% interest on loans made to the partnership.
5) Salaries –A partner is not entitled to be paid a salary for engaging in partnership business.
6) Management access –Each partner has the right to participate in management .Each partner
has equal rights to access books or records.
7) Ordinary decisions –Decisions about ordinary business matters are decided by majority rule.
8) Other decisions –Unanimous consent is required to admit a new partner, terminate partner,
change the nature of business or change the default partnership rules.
9) Fiduciary duties –That is a duty to render true accounts and fill information to the other
partners, to disclose any secret benefits, and not to compete without the consent of the
other parties. These implied terms cannot be opted out by agreement

Because a partnership is not a separate legal entity each partner share of profit is the
personal responsibly of that partner for income tax purposes.

Legal requirements.
Partnerships also require an HST number and business name registration.
Depending on the type of activity being carried out by the partnership a business licence
may be needed.
Limited partnerships.
In a limited partnership, one or more of the partners limits their liability to the amount of
their capital contributions.
There must be at least one or more general partners whose liability is unlimited.
A limited partner may not take an active part in the management of the partnership but
he/she is permitted to be an employee of the limited partnership and may provide
management advice.
It can be a difficult balancing act – If the limited partner chooses to exercise some control,
she will incur unlimited liability but if she does not there maybe instances where the
business is at risk to fail.
While in a general partnership exists as soon as the partner starts carrying on business
together, a limited partnership does not exist until a declaration has been filed with the
appropriate government authority.
Limited partnership are not often used except for tax – planning purposes.
Incorporation is a more effective way to obtain limited liability.

Limited Liability Partnerships.

A limited liability partnership (LLP) is a special form of partnership for certain professionals
such as lawyers and accountants.
Individual partners are not personally liable for the professional negligence of their partners
or for certain other obligations provided certain requirements are met.
A partner remains liable for his own negligence and for that of the people or of the partner’s
direct supervision or control. The firm itself also remains liable.
Therefore a non-negligent partner may still lose the entire value of his partnership but will
not lose personal assets.

Relations of partners to one another.

Partnership property
All property and rights and interests in property originally brought into the partnership stock
or acquired, whether by purchase or otherwise, on account of the firm, or for the purposes
and in the course of the partnership business, are called in this Act partnership property, and
must be held and applied by the partners exclusively for the purposes of the partnership and
in accordance with the partnership agreement.
Property bought with partnership money.
Unless the centrally intension appears, property bought with the money belonging to the
firm is deemed to have been bought in the account of the firm.
Conversion into personal estate of land held as partnership property.
Where land or any interest therein has become partnership property, it shall, unless the
contrary intention appears, be treated as between the partners and also as between the
heirs of a deceased partner and his executors or administrators as personal and not real
estate.
Expulsion of a partner.
No majority of the partners can expel any partner unless a power to do so has been
conferred by express agreement between the partners.
Retirement from partnership at will.
Where no fixed term has been agreed upon for the duration of the partnership, any partner
may determine the partnership at any time on giving reasonable notice of his intension to do
so to all other partners.
Where the partnership has been originally been constituted by deed, a notice in writing,
signed by the partner giving it, shall be sufficient for this purpose.
Duty of partners to render accounts.
Partners are bound to render true accounts and full information of all things affecting the
partnership to any partner or his legal representatives.
Accountability of partners of private profits.
Every partner must account to the firm for any benefit derived by him without consent of
the other partners from any transaction concerning the partnership, or from any use by him
of the partnership property, name or business connection.
Duty of partner not to compete with the firm.
If a partner without a concept of other partners carries on any business of the same nature
as and competing with that of the firm, he must account for and pay over to the firm all
profits made by him in that business.

Dissolution of partnerships.
In the absence of express agreement the partnership Act specifies rules governing
termination. In particular, the Act allows for termination in number of ways;
 Expiration of a fixed term if there was one.
 Notice by a partner to the others.
 Dissolution by death, bankruptcy or insolvency of any partner-subject to any agreement
between the partners every partnership is dissolved as regards all the partners by the
death or bankruptcy of any partner.
 Dissolution by illegality-A partnership is in every case dissolved by the happening of any
event which makes it unlawful for the business of the firm to be carried on or for the
members of the firm to carry it in the partnership.

Dissolution by court-When a partner is adjudged lunatic, is shown to the satisfaction of the

court to be of permanently unsound mind. When a partner other than the partner suing,
wilfully or persistently commits a breach of the partnership agreement or matters not
reasonably practicable.

References.
(Partnership Act, 2012)
(CMA, 2012)