By Pravin Bowry
Traditionally, most businesses in Kenya have been run as limited liability companies, private and public, under the Companies Act and as partnerships registered under the Business Names Act usually called firms.
The old legal and acceptable law is that a limited liability company is distinct from its shareholders.
Under the Limited Liability Partnerships Act ( Act No. 42 of 2011), a new hybrid method of conducting business has now been given greater legal sanction in Kenya by the Act being brought into operation on March 16, 2012.
A Limited Liability Partnership (LLP) is defined as a partnership registered under the Act. On being registered, an LLP becomes a body corporate with perpetual succession (irrespective of changes of partners) with a legal personality separate from that of its partners.
This means that the debts incurred by an LLP would be paid out of the assets of the LLP and not from the assets of individual partners save for specific cases where a partner would be personally liable for acts or omissions that do not bind the partnership.
An LLP differs from the common partnership under which the partners are liable personally for all debts and obligations of the partnership. In LLP, in contrast, the partners are only liable in contract and tort and otherwise only to a certain extent since they enjoy the status of a corporate body.
The shareholders in LLP are separate from the partnership very much akin to a limited company.
LLP is fairly easy to register and establish under the Act. The registration process has certain level of flexibility without imposing detailed legal and procedural requirements, unlike that of a limited liability company under the Companies Act which requires a Memorandum and Articles of Association and other statutory forms.
The relationship of the partners in an LLP is to be governed by the limited liability partnership agreement and if there is no such agreement then the partnership will be governed by the Act.
It is also worth noting that Section 8 of the Limited Liability Partnership Act provides that the Partnerships Act shall apply to a limited liability partnership except so far as a provision of the LLP Act otherwise expressly provides.
However, a reading of the LLP Act, one is able to observe that the Act makes a few changes from those in the Partnership Act. For instance, under the Partnership Act, a partnership is automatically dissolved upon the departure of one or more of the partners, while the LLP Act provides that there shall be continuity in the partnership business.