LAW OF COOPERATIVES

AND PARTNERSHIPS
CLS 204
LECTURER: E.MUSIKALI
This Week
1. General Partnerships
GENERAL PARTNERSHIPS
- Governed by Partnerships Act Cap 29.
- Section 3: defined as the relationship which exists between
persons carrying on a business in common with a view to
profit.
ELEMENTS
1. There must be a business.
2. The business must be carried out in common.
3. Must be carried with a view to making and sharing profit.
Partnerships are not...
a. Companies registered under the Companies Act 2015.
b. Companies incorporated by Acts of Parliament - statutory
companies.
Business
- Business - section 2 - includes every trade, occupation or
profession.
- There must be in existence some commercial enterprise
where services, goods, or both are sold for profit.
- Partners must engage in an undertaking in which they have
to perform more than one act.
- A and B contributing equally each month are not in a
partnership business, although they are sharing profit.
- Where parties in a business share both profits and losses, it
is more likely to be termed as a partnership.
Determining a Partnership (recap)
- Where there is a dispute, the main test is the application of
the definition.
- Participation in profits, is prima facie evidence of
partnership, but not proof.
a) Co-ownership - despite whether or not the co-owners share
profits.
b) Where a person receives payment of a debt by installments
(coming out of profits)
c) Servant’s/agent’s remuneration from profits.

d) widow/child of a deceased partner receiving annual

payments from profits.

e) payments received by a person by way of interest on a loan

advanced for use in the business.
f) where goodwill for the business has been sold and seller received payment
for the goodwill from the buyer out of his profit.

Goodwill - intangible asset. Amount paid for purchase of a business that is

way above the market price
FORMALITIES
- No formalities in Partnerships Act.
- Only other formality is the registration of the business name
under the Registration of Business Names Act Cap 499, if the
business is running under a different name from it partners.
- May be formed by any formed of agreement - a simple
agreement, under deed, or through a partnership
agreement.
- Does not have to be formal.
Partnership Deed (recap)
- In writing, drafted by a lawyer.
- Contains:
a. Names of intended partners.
b. Nature, place of business and name of firm.
c. Commencement date and duration of partnership (if any).
d. Firm’s capital and amount of interest to be paid on loans.
e. Bank accounts and signatories.

f. Manner of sharing profits and losses.

g. Management.

h. Details on management and audit of accounts.

i. Provisions on what happens after death, insolvency or

retirement of a partner.
 - In the absence of such a clause - the partnership becomes
insolvent after any such occurrence.

j. Arbitration clause - partners are bound to submit their dispute

to an arbiter rather than institute court proceedings.
Choice of Name
- Persons forming partnership are known as a firm.
- Firm-name - name under which they conduct business.
- Firm is not a separate legal entity from its partners thus
cannot use the word ‘limited’ as the last word in its name.
- Firm can use any name to conduct business, as long as the
name does not mislead the public with that of an already
existing firm.
 - RBNA Cap 499 - name of firm does not include all the names
of individual partners, the Christian names of individual
partners must be registered.
- On registration, the following must be produced:
a. Business name.
b. General nature of business
c. Present place of business

d.Present Christian name and surname of each partner.

e. Former Christian name and surname of any partner.

f. Nationality and usual residence address of each partner.

g. Any other business occupation of each partner.

Illegal partnerships
Occur:

1. When its objects are illegal.

2. When it consists of more than 20 partners or more than 10
in a banking business.
3. When forbidden by the law e.g. a professional partnership
between a layman and an advocate.
4. When a partner(s) resides and trades in a foreign country
and war is declared against that country.
Effect
- Members of an illegal partnership cannot enforce rights or
obligations against each other as partners.
- Courts cannot direct for accounts of the firm to be taken or
order for a partner to contribute to another’s loss.
- Unable to enforce contractual rights against third parties.
- Third parties can sue a partnership, as long as the
transaction they seek to enforce is not tainted with illegality
to the knowledge of the third party.
RIGHTS AND DUTIES
- Partnerships come into existence by mutual agreement.
- Partners in a G.P. are general partners.
- Rights and liabilities of partners are found in the partnership
agreement.
- If the agreement is silent on any matter, provisions of the
Act come into play.
Rights
1. Capital, Profits and Losses: all partners share and
contribute equally to these.
2. Indemnity: for any payment made or personal liability
incurred during the ordinary and proper conduct of the
firm’s business or in preservation of firm’s business or
property.
3. Interest: partners are entitled to interest at least 6% p.a. On
any money he lends to the firm other than the original
subscription capita.

4. Management: partners are entitled to management of

business.
Liability of Partners
- Every partner is jointly liable with others for all debt and
obligations of the firm incurred by the being a partner.
- Upon death, his/her estate is severally liable for the same, if
they remain unsatisfied.
- A new partner is not liable for the debts incurred before he
joined the firm.
- Exception - if the new partner accepts liability through
novation.
Liability for Breach of Contract
- Partners are jointly liable.
- Plaintiff can only bring a single action, but sue multiple
defendants.
- If plaintiff elects to sue one partner and obtains a
judgement, he cannot institute new proceedings against
other partners, if he was dissatisfied with the judgement.
- Advisable to bring action against firm and all partners.
- E.g. if one partner is unable to pay the whole amount
required.
Liability to the Firm for Torts
- Firms are liable for any loss/injury incurred by TP by the
wrongful act/omission of a partner.
- Act/omission must have been done by the partner whilst
acting in the ordinary course of firm business.
- With authority of other partners.
- Partners and severally liable.
- TP may elect to sue them jointly or individually, as long as
the claim remains unsatifsfied.
- Contractual obligations - firm is jointly liable. TP can only sue
once.
- Tort - Firm has joint and several liability - TP can have more
than one course of action.
- Partners have unlimited liability where a judgement has
been issued on a matter. -s. 22
- If partner pays a part of the amount, the firm is liable for the
amount left unpaid.
Ceasing to be a Partner -s,27
a. Death
b. Expulsion
c. Dissolution
d. Court order
e. Bankruptcy
Liability of Incoming and Outgoing Partners
- Incoming - one who is admitted into an already existing
from with the consent of all partners, in accordance with the
partnership agreement. - s. 26
- Incoming partner does not become liable to creditors for
any act performed by firm before he became partner, unless
he agrees to assume these obligations and liabilities before
he becomes a partner
 - Such an agreement does not render the partner liable for
debts incurred before joining the firm.
- Retiring/outgoing partner - leaves the business while others
continue.
- May retire:
a. With consent of all partners
b. In accordance with partnership agreement
c. Through notice - partnership at will
- Retirement does not release one from liability incurred
during the course of business.
- Discharged from existing liability through an agreement not
to deal with creditors and the new firm.
- Outgoing partner should inform all creditors of the fact of
retirement.
- Failure to inform them would lead to the partner remaining
liable for debts incurred after retirement.
- Former partners are indemnified for any payment made by
the partner to extinguish partnership obligations. -s.32
Minor Partners
- Below 18.
- May be admitted to enjoy the benefits of partnerships.
- Not personally liable.
- His separate property cannot be attached to firm debts.
- His share in the firm is liable for firm obligations.
- Minor must decide upon attaining 18 whether to continue
being a partner or to sever his connection with firm.
- Failure to exercise this right within a reasonable time
ensures that the partner is liable for all debts and
obligations of firm since the date of his admission to the
firm.
- English law - a person who does not repudiate partnership is
only liable from the date he attains the age of majority.
Partner by Holding Out
- Section 25
- Person who is not a partner, but through spoken words or
conduct:
a. Represents the partnership/partner(s)
b. Knowingly allows the partnership to be represented as a
partner.
- Personally liable, as a partner, for any obligation to a TP who
relied on this representation.
 - Released from personal liability through holding out if:
a. Representation is made to the TP more than a year before
the FP ceased to be a partner.
b. A notice has been issued by the partnership prior to
dealings between TP and FP
c. Partnership continues to carry out business in the same
name.
d. Partnership continues to include his name in list of partners
ASSIGNMENT OF SHARES
- Partner may assign his/her shares to another party, upon
agreement of all partners. -s. 34
- Assignee is not entitled to:
a. Participate in management.
b. Inspect partnership records.
 - Entitled to receive -
a. The share of partnership profits entitled to assigning
partner or
b. Upon dissolution, the share of entitlement of the assigning
partner.
DISSOLUTION
- Section 35
- Occurs if:
a. Numbers fall below 2
b. Partnership term expires.
c. Completion of venture for which partnership was constituted.
d. Death or Insolvency
e. Court order on application of partner.
f. Court order by application of minister.
g. Illegality

h. Charging of one’s share in partnership property to extinguish separate

debt.

- Partners may apply for a court decree to dissolve partnership if:

a. A partner becomes of unsound mind.
b. Partner becomes incapable of performance of his part in contact.
c. Wilful breach of Partnership Contract - Carmichael v Evans (1904) -
dishonesty
d. Business is being carried out at a oss.

e. Partner acts in a manner which affects the carrying out of business.

f. When court thinks it is just and equitable to dissolve - Yenidjm Tobacco Co.
Limited (1904)
- Where a partnership’s term is not fixed, or where the term is
fixed but at least one of the partners ceases to be a partner,
dissolution occurs,
- At least half the number of the partners must make the
decision.
- If partnership continues after expiration of term, rights and
duties remain as at the time of expiration. Becomes
partnership at will.
 - Agreement to break up may be inferred from -
a. Ceasing of business.
b. Ceasing to conduct business with a view to make profit
Effects
- Partnership shall carry on with business in so far as it is
necessary for -
a. Dissolution of the partnership
b. Winding up of the partnership by partners.
c. Winding up by liquidator.
- Partners may bind each other in transactions made to wind
up business.
- Partners may give one or more partners authority to carry
on business for winding up purposes.
- Partnership property - including goodwill - distributed as per
capital contributions upon payment of debts and liabilities.
THE END