The law of partnerships in Kenya

  

Date Posted: 4/12/2013 6:32:02 AM

Posted By: Brendah Aroko  Membership Level: Gold  Total Points: 3317

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A partnership is the relation that subsists between persons carrying on a business in common with the view of profit. If such a relation subsists but they end up making loses instead of profits then a partnership can still be inferred from their intention and not from the outcome of the relation. This definition is given at section 3(1) of the Partnership Act Cap 29 Laws of Kenya. From the definition three key features can be drawn:

1. There must be a business
2. The business must be carried on with a view of profit
3. The business must be carried on by or on behalf of the partners.

The Act does not give a comprehensive definition of the term business because it simply puts it at section 2 as every trade, occupation or profession. So most authors on the law of partnership prefer to define a business as a calling in which person hold themselves out as willing to sell to everybody goods, skills , assistance and any other services.

When the Act talks about carrying on a business in common it implies that even those sleeping partners who do not participate in the running of the business but share the profits will bear the same liability as the active partners for the debts and liabilities of the firm. A partner can be described as a person who has entered into a relation of partnership.

At section 4 of the Act there are certain rules for determining the existence of a partnership and it states that the sharing of gross returns does not of itself create a partnership. Prior to the 19th century the mere sharing of profits constituted all recipients as partners in the business but the position was changed in the case of Cox V Hickman. In this case it was held that whether a

partnership relationship exist or not must be inferred from the real intention of the parties and from the contract between them and not just upon hat one term of the contract which provides for participation in the profits. In the other case of Davis V Davis which expounded on section 4 (c) of the Act which is somewhat contradictory. It stated that the true position of that section is that the receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in it but if there are other circumstances to be considered, they ought to be considered fairly together without attaching undies weight on any of them.

Some of the facts that do not constitute a partnership under section 4 include the following.
1. The receipt of a debt by installments or otherwise from accruing profits
2. The receipt of a servant or agent of a share in the profits by way of remuneration.
3. The receipt by a widow or child of a deceased partner of a portion of the profits by way of annuity.
4. The receipt of a portion of the profits by the vendor of goodwill of a business.
5. The receipt of a share of the profits or interest on the loan by a person, who advanced money by way of a loan, provided it is in writing.

The law prohibits the creation of partnerships consisting of more than 20 people like was in the case of Fort Hall Bakery Supply Co. V Wangoe. In this case an organization of more than 40 people was involved in a misappropriation scandal by the manager and they filed an action against him in court but since they were neither registered under the Companies Act or the Registration of Business Names Act, the court held that it could not take cognizance of the matter except in penal matters.

A partnership may also be considered illegal if it is formed for illegal purposes which are forbidden by law and if it is contrary to public policy and good morality. The court will not enforce the rights under it and such partnerships may become illegal upon the passing of an Act to the contrary even after its inception.

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