LIMITED LIABILITY PARTNERSHIPS IN KENYA

On 16 March 2012, the new Limited Liability Partnerships Act, 2011 (LLP Act)
took effect as law in Kenya. The Regulations only requisite to facilitate registration
were later published in September the same year paving way for a new form of
business association known as a limited liability partnership (LLP).
The LLP combines some of the features of a traditional partnership with
the Limited Liability benefits more typically hitherto only associated with
Companies.
They were made available to combine the flexibility of partnerships with the
protection of Limited Liability. Although still not widely used, many professional
partnerships have chosen to convert to LLP.
Constitution
It is not required that an LLP creates a constitution/Memorandum or Articles of
Association. However, the Act provides that the Partners to an LLP would execute a
Limited Liability Partnership Agreement to set out the agreement between the
members. The LLP does not file any form of constitution. In this agreement, the
members can agree on profit sharing, capital contributions, roles/duties,
management or other arrangements amongst themselves and change those
arrangements as often as they agree.
Taxation
The tax rules for an LLP are the same as any ordinary partnership. The members are
deemed self-employed. Each partner will report their share of the profit on their
personal tax return. The individual partners will pay income tax on their profit share.
The LLP structure provides a potentially useful alternative business vehicle to the
private company. It has the benefit, at least at present, of being less
regulated than a private company. From a tax perspective, it may prove more
effective than a company because currently partnership income is taxed (at
individual level) in the hands of the individual partners and not at the firm level,
whereas companies are taxed at the entity level and any dividends also taxed in the
hands of shareholders. It remains to be seen whether the Government would
propose taxing the LLP at firm level given its separate legal personality
Provided that Kenyan income tax laws are not amended to impose a tax on the LLP
at firm level, then the LLP will also provide a superior alternative business vehicle to
a general partnership. This is because the LLP will provide the same pass through
taxation benefit as a general partnership, but in addition, retain Limited
Liability to the partners akin to that offered by a Company to its shareholders.
Liability Protection
In general partnerships, each participant is personally responsible for the actions of
the company. This includes debts, liabilities and the wrongful acts of other partners.
One advantage of a limited liability partnership is the liability protection it affords.
This type of partnership structure protects individual partners from personal

liability for negligent acts of other partners or employees not under their direct
control,. In addition, individual partners are not personally responsible for company
debts or other obligations. This is advantageous for an individual partner when
potential lawsuits or claims of negligence against the business are concerned.
Another potential benefit of an LLP over a general partnership is that the number
of partners is not restricted. The Companies Act restricts the number of partners in
a general partnership to no more than 20
Flexibility
Limited liability partnerships offer participants flexibility in business ownership.
Partners have the authority to decide how they will individually contribute to
business operations. Managerial duties can be divided equally or separated based
on the experience and qualifications of individual partner. In addition, partners who
have a financial interest in the Business can elect to not have any authority over
business decisions but still maintain ownership rights based on their percentage
interest in the Business.
Important Features
1. MEMBERSHIP: It must have at least 2 partners and 1 manager. The
partners may be natural persons or bodies corporate. However, the
manager(s) must be a natural person.
2. BODY CORPORATE: An LLP is a separate legal entity from its partners.
In this respect, it is similar to a company, and different from a typical
partnership. It thus can acquire/own/hold and dispose of movable and
immovable properties (including land) and can sue and be sued in its own
name. Whereas the Act establishing LLP is silent, it is believed that
this corporate feature enables an LLP to create Securities for Loans and
charge them like any other Companies.
3. LIABILITY: Partners of an LLP are not liable for the firms debts and
obligations nor are they liable for each others debts and obligations. This is
not the case with general partnerships. However, individual partners in an
LLP are liable for their own wrongful acts or omissions. The LLP is also
liable for a partners wrongful acts or omissions, to the same extent as that
partner, where the partner is engaging in the LLPs business or acting with its
authority.
4. PERPETUAL SUCCESSION: LLPs enjoy Perpetual Succession in that, in the
event of death or exit of any one or more Partners, the same does not affect
the existence of the LLP.

REGISTRATION
GENERAL OVERVIEW OF THE LIMITED LIABILITY PARTNERSHIPS ACT *

A limited liability partnership (LLP) is a body corporate which has legal personality
separate from its members and combines features of both companies and
partnerships. Viewed as an alternative corporate vehicle, it seeks to attain benefits
of both forms of business organization: partnership and companies. It provides
flexibility of a partnership and also limits the owners liability with respect to the LLP
and their respective stakes itself. Basically, the partners are able to protect
themselves from being held liable for the losses incurred by one of their business
partners.
The emergence of Limited Liability Partnerships seeks to achieve the same benefits
of both partnerships and companies as forms of business organizations. Particularly,
it seeks to free the mind of a professional from the fear that his personal assets may
be attached for the negligent and other wrongful acts of his co-partners; over whom
he has no control.
The law does this by providing the shield of limited liability, by way of a separate
legal personality. This allows professional expertise and initiative to combine with
financial risk taking capacity in an innovative and efficient manner.
The Limited Liability Partnership Act No. 42 of 2011 was assented into law and
commenced operation on 16th March 2012. The Act repealed the Limited
Partnerships Act Chapter 30 which previously governed the formation, management
and regulation of limited partnerships. The new Act provides for registration, nature,
management and winding up of limited liability partnerships.
REGISTRATION:
Provisions of registration are covered under Sections 17 to 23. The Act provides that
the limited liability partnership shall be registered by a statement signed by each
partner proposing to be a partner. The statement contains: name of the partnership,
nature of the business, proposed registered office, name, identity document,
nationality and usual place of residence of each person who will be partner and any
other information.
Upon successful registration, the registrar shall issue a certificate of registration
which is conclusive evidence that all the requirements have been met and that the
partnership has been registered. Under section 19, the registrar may refuse
registration on certain national security or public interest grounds which include:
1. The partnership is operated for an unlawful purpose or for purposes
prejudicial to public peace, welfare or good order;
2. It would be contrary to national security or public interest.
On the partnership of the entity, the act provides that it shall have more than 2
partners. The partnership also must have a manager who is to be a natural person,
above 18 years and resident in Kenya.
NAME OF THE LIMITED LIABILITY PARTNERSHIP:

The Act provides that the names of the partnership shall end with Limited Liability
Partnership, llp or LLP. The registrar may refuse to register if the name is
undesirable, identical to another limited liability partnership or business name,
identical to a name reserved under the act, Business Names Act or laws relating to
Companies.
REFUSAL TO REGISTER:
There are instances when the Registrar may refuse to register the entity and in
these instances, he will notify in writing the decision refusing registration and state
reasons for such refusal. The registrar may not refuse without giving persons an
opportunity to show cause as to why it shouldnt be registered. There lies a right of
appeal within 30 days where a party has been denied registration.
CONVERSION OF PARTNERSHIPS AND PRIVATE COMPANIES:
Section 24 to 25 provides for conversion of partnerships and private companies to
limited liability partnerships which means existing partnerships and private
companies can be converted to limited liability partnerships.
Upon registration of the Limited Liability Partnership, it:
a)

Becomes a body corporate;

b)

Has perpetual succession;

c)

Obtains a legal personality separate from its partners;

d)

Is capable of suing and being sued in its own name; and,

e)

Becomes capable of acquiring and owning property, movable or immovable.

LIABILITY OF THE PARTNERSHIP:

Section 10 of the act makes a limited liability partnership liable in issues arising
from contract, tort or otherwise. This means that partners are not personally liable,
directly or indirectly, for an obligation owed by the partnership as it is a separate
legal entity. In such a case, the partnerships property will be applied in fulfilment of
the Limited Liability Partnerships obligations and partners would be liable to the
extent of the amount agreed in the partnership agreement.
A partners liability is however not limited where the partner is personally liable for
individual acts or omissions committed in contracts, torts etc. This liability is
individual to the partner on the wrong and not on the other partners.
AGENCY:
There exists an agency relationship between the limited liability partnership and a
partner. Section 11(1) of the act makes partners agents of the partnership with the
power to bind the limited liability partnership.
Section 11 of the Limited Liability Partnership Act states that the partner shall be an
agent of the LLP except where he has no authority to act as such or where the

person the partner is dealing with knows that he is not a partner in the partnership.
According to the rules of principal-agent relationship, the principal is vicariously
liable for the acts of its agent as long as that agent was acting under the instruction
of the principal and within the course of employment.
LIABILITY OF THE PARTNER:
If a partner is liable to a person, other than another partner of the partnership, as a
result of a wrongful act or omission of that partner in the course of the business of
the limited liability partnership or with its authority; the partnership is liable to the
same extent as that partner and the liabilities of the LLP will be payable out of the
property of the LLP.
However, the limited liability partnership is not bound by a partner acting with no
authority provided that the person the partner is dealing with does not know or
doesnt believe the person to be a partner of the limited liability partnership.
Section 15 of the Act allows a partner to assign the whole or any part of his interest
in the partnership but only to the extent that the assignee becomes entitled to
receive distributions from the partnership that the partner would otherwise have
been entitled to receive.