Q3- 2016- COMMERCIAL TRANSACTIONS

Q3 2016 COMMERCIAL TRANSACTION

PARTNERSHIP QUESTION

QUESTION THREE

Tom and Mary have for the last five years carried on business in the name of Style of Town Enterprises. Their business form of choice has been the General Partnership. So far, both of them have been actively engaged in the running of the business. Mary has, however, recently had a baby. She would want to dedicate more time to raising the baby. As such, she will not be able to dedicate as much time to the running of the business as she previously had. She however desires to remain an investor in the business and further to be available for consultation regarding broad and long-term strategic type decisions or matters affecting the business. Tom and Mary have therefore decided to convert their business form to a Limited Partnership. To facilitate this, the existing Partnership Agreement will have to be amended so as to make the requisite provision(s) for a Limited Partnership.

Required:

The following are excerpted clauses of the existing (general) Partnership Agreement. You are required to amend the following clauses with a view to making suitable provision for a Limited partnership form of business association. After amending each clause, you should further, in parenthesis (brackets) appearing at the end of each amended clause, cite the relevant legal rule (including the applicable section of relevant statute) which has informed the amendment.

PARTNERSHIP AGREEMENT

THIS PARTNERSHIP AGREEMENT (the "Agreement") is made and entered into

this (insert the "Execution Date")

BY AND BETWEEN

TOM TIM of Post Office Box Number 111 Nairobi and MARY MARIA of Post Office Box Number 222 Nairobi (hereafter individually referred to as the "Partner" and collectively as the "Partners").

BACKGROUND

A. The Partners wish to associate themselves as partners in business.

B. This Agreement sets out the terms and conditions of the partnership.

IN CONSIDERATION of and as a Condition of the Partners entering into this Agreement and other valuable consideration the receipt and sufficiency of which consideration is hereby acknowledged the parties to this Agreement agree as follows: 1. Formation By this Agreement, the Partners enter into a General Partnership (the "Partnership") in accordance with the laws of Kenya. The rights and obligations of the Partners will be as stated in the applicable laws of Kenya, specifically, the Partnerships Act (No.16 of 2012), except as otherwise provided hereunder.

2. Name

The firm name of the partnership will be TOMA Enterprises.

3. Purpose: ...

4. Term: ...

5. Place of business: ...

6. Capital contribution: ...

7. Withdrawal of Capital:

A Partner may withdraw all or any portion of their capital contribution at any time subject to giving a seven (7) days prior Notice to the other partner.

8. Management

All actions and decisions respecting the management, operation and control of the partnership and its business will be decided by a unanimous vote of the partners. Each partner will have authority to bind the partnership in contract.

9. Liability of Partners

Except as otherwise provided in this Agreement, the liability of the Partners from the conduct of the business affairs on operations of the partnership or from the debts of the partnership is unlimited.

10. Admission of New Partners

A new partner may only be admitted to the partnership with unanimous vote of all partners.

11.

Specifically, you are required to amend the following:

(a) Parties clause (note to explain how/why you have designated the status of each partner. (3 marks)

The parties clause will be amended to read TOM TIM of Post Office Box Number 111 Nairobi (General Partner) and MARY MARIA of Post Office Box Number 222 Nairobi (Limited Partner) (Tom has been put as a general partner so that he can solely undertake management of the partnership and have unlimited liability whereas on the other hand Mary has been designated as a limited partner, a limited partner need not take part in management as he or she is prohibited (sec 58 Partnerships Act). They may however take part in advising the general partner as to the future prospects that the firm is undertaking. This is allowed under the 1^st schedule of the partnerships act which states the activities that a limited partner may do. They will therefore form a limited partnership with one general and one limited partner)

(b) Withdrawal of Capital Clause. (3 marks)

7. Withdrawal of Capital:

A Partner may not withdraw all or any portion of their capital contribution at any time

A limited partner in a partnership may not withdraw their capital contribution at any time regardless of giving notice. This is prohibited by section 59 of the Partnerships Act. The withdrawal of capital makes the limited partner (Mary) liable to partnership obligations beyond her capital contribution.

(c) Liability of Partners Clause. (3 marks)

Except as otherwise provided in this Agreement, the liability of the general partner from the conduct of the business affairs on operations of the partnership or from the debts of the partnership is unlimited whereas the lability of the limited partner is limited.

In an LP the general partner is personally liable jointly and severally for the partnerships obligations this is as per section 56(1) of the Partnerships Act which states that a GP is liable for al debts and obligations. On the other hand, the liability of a limited partner is limited.

(d) Admission of New Partners Clause. (1 mark)

A new partner may only be admitted to the partnership with unanimous vote of all general partners.

In an LP the admission of a new partner is decided upon by the vote of the general partners. This is provided for under section 62 of the Partnerships Act. The limited partner has no decision making powers with regards to the admittance of a new partner.