Limited Liability Partnerships in Kenya

LIMITED LIABILITY PARTNERSHIPS IN KENYA On 16 March 2012, the new Limited Liability Partnerships Act, 2011 (“ LLP Act”) t! e"ect as law in #enya$ %he &e'latins nly reisite t *acilitate re'istratin were later pblished in +eptember the same year pain' way *r a new *rm * bsiness assciatin !nwn as a limited liability partnership (“ LLP”)$  %he LLP cmbines sme * the *eatres * a traditinal partnership with the Limited Liability bene-ts mre typically hithert nly assciated with .mpanies$  %hey were were made aailable t cmbine the /eibility /eibility * partnerships partnerships with the prtectin prtectin * Limited Liability$ Alth'h still nt widely sed, many pr*essinal partnerships hae chsen t cnert t LLP$

Constitution t is nt reired that an LLP creates a cnstittinMemrandm r Articles * Assciatin$ Assciatin$ 3weer, the Act prides that the Partners t an LLP wld eecte a Limited Liability Partnership Partnership A'reement t set t the a'reement between the members$ %he LLP des nt -le any *rm * cnstittin$ n this a'reement, the members can a'ree n pr-t sharin', capital cntribtins, rlesdties, mana'ement r ther arran'ements amn'st themseles and chan'e thse arran'ements as *ten as they a'ree$

Taation  %he ta rles *r an LLP are are the same as any any rdinary rdinary partnership$ partnership$ %he members are are deemed sel*4emplyed$ 5ach partner will reprt their share * the pr-t n their persnal ta retrn$ %he indiidal partners will pay incme ta n their pr-t share$  %he LLP strctre strctre prides prides a ptentially se*l alternatie alternatie bsiness bsiness ehicle t the the priate cmpany$ t has the bene-t, at least at present, * bein' less !e"ulated  than a priate cmpany$ rm a ta #e!s#ecti$e , it may pre mre e"ectie than a cmpany becase crrently partnership incme is taed (at indiidal leel) in the hands * the indiidal partners and nt at the -rm leel, whereas cmpanies are taed at the entity leel and any diidends als taed in the hands * sharehlders$ t remains t be seen whether the 7ernment wld prpse prpse tain' the LLP at -rm leel 'ien its separate le'al persnality Prided Prided that #enyan incme ta laws are nt amended t impse a ta n the LLP at -rm leel, then the LLP will als pride a sperir alternatie bsiness ehicle t a 'eneral partnership$ %his is becase the LLP will pride the same “pass thr'h” taatin bene-t as a 'eneral partnership, bt in additin, retain Limited Liability t the partners a!in t that "ered by a .mpany t its sharehlders$

Liability P!otection n 'eneral partnerships, each participant is persnally respnsible *r the actins * the cmpany$ %his incldes debts, liabilities and the wrn'*l acts * ther partners$ One adanta'e * a limited liability partnership is the liability prtectin prtectin it a"rds$  %his type * partnership partnership strctre strctre prtects indiidal partners partners “*rm “*rm persnal persnal

liability *r ne'li'ent acts * ther partners r emplyees nt nder their direct cntrl,”$ n additin, indiidal partners are nt persnally respnsible *r cmpany debts r ther bli'atins$ %his is adanta'es *r an indiidal partner when ptential lawsits r claims * ne'li'ence a'ainst the bsiness are cncerned$ Anther ptential bene-t * an LLP er a 'eneral partnership is that the numbe! o% #a!tne!s is nt restricted$ %he .mpanies Act restricts the nmber * partners in a 'eneral partnership t n mre than 20

&leibility Limited liability partnerships "er participants /eibility in bsiness wnership$ Partners hae the athrity t decide hw they will indiidally cntribte t bsiness peratins$ Mana'erial dties can be diided eally r separated based n the eperience and ali-catins * indiidal partner$ n additin, partners wh hae a -nancial interest in the 8siness can elect t nt hae any athrity er bsiness decisins bt still maintain wnership ri'hts based n their percenta'e interest in the 8siness$

Im#o!tant &eatu!es 1$ MEMBERSHIP 9 t mst hae at least ' #a!tne!s and ( mana"e!$ %he partners may be natral persns r bdies crprate$ 3weer, the mana'er(s) mst be a natral persn$ 2$ B)DY C)RP)RATE9 An LLP is a se#a!ate le"al entity %!om its #a!tne!s $ n this respect, it is similar t a cmpany, and di"erent *rm a typical partnership$ t ths can acirewnhld and dispse * mable and immable prperties (incldin' land) and can se and be sed in its wn name$ :hereas the Act establishin' LLP is silent, it is belieed that this corporate feature enables an LLP t create +ecrities *r Lans and char'e them li!e any ther .mpanies$ ;$ LIABILITY* Pa!tne!s o% an LLP a!e not liable %o! t+e ,!m-s debts and obli"ations nr are they liable *r each thery Perpetal +ccessin in that, in the eent * death r eit * any ne r mre Partners, the same des nt a"ect the eistence * the LLP$

RE0ISTRATI)N 0ENERAL )1ER1IE2 )& THE LIMITED LIABILITY PARTNERSHIPS ACT 3

A limited liability partnership (LLP) is a bdy crprate which has le'al persnality separate *rm its members and cmbines *eatres * bth cmpanies and partnerships$ ?iewed as an @alternatie crprate ehicle<, it see!s t attain bene-ts * bth *rms * bsiness r'aniatin9 partnership and cmpanies$ t prides /eibility * a partnership and als limits the wner
RE0ISTRATI)N* Prisins * re'istratin are cered nder +ectins 1E t 2;$ %he Act prides that the limited liability partnership shall be re'istered by a statement si'ned by each partner prpsin' t be a partner$ %he statement cntains9 name * the partnership, natre * the bsiness, prpsed re'istered Cce, name, identity dcment, natinality and sal place * residence * each persn wh will be partner and any ther in*rmatin$ Fpn sccess*l re'istratin, the re'istrar shall isse a certi-cate * re'istratin which is cnclsie eidence that all the reirements hae been met and that the partnership has been re'istered$ Fnder sectin 1G, the re'istrar may re*se re'istratin n certain natinal secrity r pblic interest 'rnds which inclde9 1$ %he partnership is perated *r an nlaw*l prpse r *r prpses pre>dicial t pblic peace, wel*are r 'd rderB 2$ t wld be cntrary t natinal secrity r pblic interest$ On the partnership * the entity, the act prides that it shall hae mre than 2 partners$ %he partnership als mst hae a mana'er wh is t be a natral persn, abe 1H years and resident in #enya$

NAME )& THE LIMITED LIABILITY PARTNERSHIP*

 %he Act prides that the names * the partnership shall end with @Limited Liability Partnership<, @llp< r @LLP<$ %he re'istrar may re*se t re'ister i* the name is ndesirable, identical t anther limited liability partnership r bsiness name, identical t a name resered nder the act, 8siness Dames Act r laws relatin' t .mpanies$

RE&/SAL T) RE0ISTER*  %here are instances when the &e'istrar may re*se t re'ister the entity and in these instances, he will nti*y in writin' the decisin re*sin' re'istratin and state reasns *r sch re*sal$ %he re'istrar may nt re*se witht 'iin' persns an pprtnity t shw case as t why it shldn
C)N1ERSI)N )& PARTNERSHIPS AND PRI1ATE C)MPANIES* +ectin 2= t 2I prides *r cnersin * partnerships and priate cmpanies t limited liability partnerships which means eistin' partnerships and priate cmpanies can be cnerted t limited liability partnerships$ Fpn re'istratin * the Limited Liability Partnership, it9 a)

8ecmes a bdy crprateB

b)

3as perpetal sccessinB

c)

Obtains a le'al persnality separate *rm its partnersB

d)

s capable * sin' and bein' sed in its wn nameB and,

e)

8ecmes capable * acirin' and wnin' prperty, mable r immable$

LIABILITY )& THE PARTNERSHIP* +ectin 10 * the act ma!es a limited liability partnership liable in isses arisin' *rm cntract, trt r therwise$ %his means that partners are nt persnally liable, directly r indirectly, *r an bli'atin wed by the partnership as it is a separate le'al entity$ n sch a case, the partnerships< prperty will be applied in *l-lment *  the Limited Liability Partnership
A0ENCY*  %here eists an a'ency relatinship between the limited liability partnership and a partner$ +ectin 11(1) * the act ma!es partners a'ents * the partnership with the pwer t bind the limited liability partnership$ +ectin 11 * the Limited Liability Partnership Act states that the partner shall be an a'ent * the LLP ecept where he has n athrity t act as sch r where the

persn the partner is dealin' with !nws that he is nt a partner in the partnership$ Accrdin' t the rles * principal4a'ent relatinship, the principal is icarisly liable *r the acts * its a'ent as ln' as that a'ent was actin' nder the instrctin * the principal and within the crse * emplyment$

LIABILITY )& THE PARTNER* * a partner is liable t a persn, ther than anther partner * the partnership, as a reslt * a wrn'*l act r missin * that partner in the crse * the bsiness * the limited liability partnership r with its athrityB the partnership is liable t the same etent as that partner and the liabilities * the LLP will be payable t * the prperty * the LLP$ 3weer, the limited liability partnership is nt bnd by a partner actin' with n athrity prided that the persn the partner is dealin' with des nt !nw r desn