CO-OPERATIVES & PARTNERSHIPS LAW NOTES PART 1

*DISCLAIMER*

The notes below are adapted from the Kenyatta University, UoN and Moi University Teaching module and the students are adviced to take keen notice of the various legal and judicial reforms that might have been ocassioned since the module was adapted. the laws and statutes might also have changed or been repealed and the students are to be wary and consult the various statutes reffered to herein

   

The Historical Development of the Cooperative movement.

Basically the cooperative movement was started in the 19^th Century in Europe.  The Countries that featured here were Germany, France and Britain.  The initiative in these countries has been identified with 3 personalities.

1.                  F W Raifferson in Germany

2.                  Charles Fourier in France

3.                  Robert Owen in Britain

However the movement is normally traced to the Rochdale Equitable Pioneers Society that started operations in 1844.  This society was composed of a group of cotton weavers and other workers in Rockdale Lancashire who met together to trade under the name of the society.  Their success inspired the creation of other cooperatives.  At the time Europe was experiencing pronounced social as well as economic changes.

The most significant of these arose from the industrial revolution which had brought about poverty among many people.  It had also brought about concentration of wealth in a few huts.  So cooperatives formed in these early periods were a reaction to the evils of poverty.  Workers and peasants formed cooperatives in order to minimise poverty through mutual assistance and self reliance.

The original founders of cooperatives formulated guidelines with a view to assisting them in their operations.  These guidelines have been subject to modifications over time.

In 1966 the international Cooperative Alliance which is a global cooperative organisation made recommendations which resulted in the formulation of the guidelines into 6 basic principles which represent the essential features of a cooperative society as a formal organisation.

This was the 23^rd Congress Report of 1966 entitled the Report of the Commission on Cooperative principles, recommendations and conclusions.  The principles relate to open membership, democratic control, limited rate of interest on share capital, disposal of surplus, promotion of Education and Cooperation with other cooperative organisations.

THE BASIC PRINCIPLES OF COOPERATION

Cooperatives by their very nature contribute to the improvement of the living conditions of their members especially the low income earning segments of the population.  Cooperatives through a voluntarily agreed association are able to tap the energies of a group effort and economies of scale for the benefit of their members.  The benefits that can accrue from an autonomous mutually agree self-help and self-controlled systems of carrying out income earning activities through a cooperative are many and varied.

Due to this ability to harness group energy that enables them to collect surpluses at grass root level for the benefit of members, they have been recognised as essential vehicles for economical growth and development of a national economy.

A cooperative is defined as an autonomous association of persons united voluntarily to meet their common economic, social, cultural needs and aspirations through a jointly owned and democratically controlled enterprise.

Like companies, cooperatives are economic organisations whose income generating activities are devoted to the economic and social welfare of their members by providing services which enable individuals to improve their personal skills and economic means for self advancement. They are based on the values of self help, self-responsibility, democracy, equality and equity.

In the tradition of their founders, cooperative members believe in the ethical values of honesty, openness, social responsibility and caring for others.  So the cooperative principles are guidelines by which coperatives put their values into practice.

THE PRINCIPLES

1.                  Voluntary and open membership  - the principle of open membership establishes that there should be no limitation to membership in  a cooperative society.  In accordance with this principle there should be no artificial limitations based on discrimination, placed in the way of a member to bar membership.  It does not however mean that everyone who wants to join a particular society can become a member.  Limitations may be necessary for example where the societies activities require that members must have a certain common skill.  Persons without the skill are accordingly excluded from joining the society because they lack the common skill required for membership in the society.  Thus one can say that cooperatives are voluntary organisations open to all persons able to use their services and willing to accept the responsibilities of membership without gender, social, political or religious discrimination.

2.                  Democratic member control          the principle of democratic control has several aspects to it.

(i)                 It establishes that members must have the final authority in making decisions concerning their society since they will have created it to serve their needs.  This aspect of democratic control finds expression in provisions ensuring voting at general meetings

(ii)               The principle requires that every member has one vote notwithstanding his or her share contributions.  This springs from the idea of equality of all members in a cooperative society.  Thus the economic superiority of the member is not permitted to adversely affect the equality of members in the decision making process;

(iii)             Since all members cannot participate in the day to day affairs of the society, there must be a small group of members normally the committee which manages and administers the society.  The committee must be elected by members and be accountable to them. The right of members to appoint the committee entails the rights to remove it if it does not perform its work well.

3.   Member Economic Participation;     This principle has two links

(i)         Limited rate of interest on capital – cooperatives differ from other types of business organisations like companies and partnerships which are formed with a profit motive.  A cooperative is formed to provide services and not as a means of facilitating the accumulation of wealth.  Accordingly, the share capital of a cooperative gets a limited rate of interest.  The members contribute to and democratically control the capital of their society.  At least part of that capital is usually the common property of that cooperative.  Members usually receive limited compensation if any on the capital subscribed as a condition of membership.  They allocate surpluses for any of the following purposes. Developing their cooperative possibly by setting up reserves part of which at least would be indivisible benefiting members in proportion to their transactions with the cooperative and supporting other activities approved by the membership

(ii)               Disposal of surplus – the principle relating to the disposal of surplus is intended to ensure that in a cooperative society there is a fair and just distribution of the surplus and no member gains at the expense of the others.  Here surplus refers to the funds which remain after operational expenses and all the expenses of the society including statutory requirements are met.  An efficiently ran cooperative society ought to produce a surplus.  Fair and just distribution is achieved if the surplus is distributed in proportion to a member’s business transaction with the society.

4.         Autonomy and Independence:   cooperatives are autonomous self-help organisations controlled by the members.  If they enter into arrangements with other organisations including governments or raise capital from external sources, they do so on terms that ensure democratic control by their members and maintain their cooperative autonomy.

5.               Promotion of Education, Training and Information  the principle on the promotion of education of cooperaters establishes that a member of a cooperative society must be informed of all about cooperative organisation.  The education cooperatives must be promoting.   A member of a society must know his/her rights obligations and must therefore exercise the rights and meet the obligations with respect to his/her membership from a position of knowledge.  The member must know the principles that guide the functions of a society and other matters related to its activities, its management and administration.  The educational effort should cover society officials and employees as well as others who work with cooperatives and members of the public ought to be involved in the education process as well.

6.                                          Cooperation among Cooperatives  the principal of cooperation of a society with other societies was adopted as one of the cooperative principles in order to strengthen the cooperative movement through mutual assistance at the local  national as well as international level.  The potential of a strong movement to bring about social and economic development of people regardless of their background was thus recognised.  The last of the cooperative principles recently enshrined

7.   Concern for the Community         cooperatives work for the sustainable development of their communities through policies approved by their members.

HOW DID COOPERATIVES COME TO KENYA

1          Settler initiatives in Kenya

relating to cooperatives:    Cooperatives were introduced in Kenya by the European settlers in the early 20^th century.  The first cooperative society the Lumbwa Cooperative Society was formed in 1908. This was followed by several others after the First World War.  Prominent features of these early cooperatives were firstly, they were formed through member initiatives without the government actively promoting their formation.  Secondly they were formed by European settlers. 

The development of cooperatives among settlers must be understood within the context of colonialism.  It was only the settler community that had the support and opportunity for organised agriculture and marketing outlets in the early years of colonialism.  The lack of encouragement to Africans to form cooperatives has also to be understood within the colonial context.  Their position was presumed to be subordinate and therefore no incentive was given to them to improve their agriculture.

It also would have been politically unwise to encourage cooperation among Africans during colonialism as these will enhance their political consciousness.

COOPERATIVE LEGISLATION

The first cooperative legislation enacted in Kenya was in response to settler cooperatives.  This was the Cooperative Societies Registration Ordinance No. 24 of 1931.  It allowed use of its provisions by associations registered in other forms for example companies as long as these engaged in cooperative marketing.

An amendment of the Ordinance in 1932 did not change the situation.  In fact it allowed persons, partnerships and companies in the timber industry to fall within the definition of cooperative societies.  Cooperative in this early period in Kenya was mainly concerned with assisting profit making organisations in their operation.

It was not until 1943 when cooperative principles began to emerge in cooperative law that ordinance NO. 16 of 1943 amended the 1932 Act and provided a definition of a cooperative society which reflected some attention to cooperative principles.  The amendments came at a time when major changes in African policy were underway.   

In 1945 a new cooperative society ordinance was passed with the main purpose of encouraging Africans to form cooperatives.  The development of cooperatives among Africans is traceable to several factors.

1.                  The general change of attitude towards African agriculture – the depression of he 1930’s and the need for self sufficiency in cereals and horticultural products caused by the 2^nd World war created sufficient impact on the colonial economy to warrant exploitation of all available capabilities in the economy in order to improve the economic situation.  African Agriculture was encouraged.  In order to achieve its goals, the government had to have wide powers in directing and regulating economic activities in both settler and African areas.  The cooperative effort was necessary if African agriculture was to be improved to ensure maximum productivity.  Where possibilities were identified, cooperatives institutions were promoted among Africans under the supervision of a newly appointed registrar of cooperatives.  The 1945 cooperative societies ordinance also provided for supervisory government control for example Section 42 thereof empowered the Registrar of his accord or on application over majority of a committee or on the requisition of not less than one third of the members to hold an inquiry or direct some person by order to hold an inquiry into the constitution the working and financial condition of a society.  The registrar could cancel registration of a society after the inquiry.  Section 59 made it an offence for a Registrar of Societies to deliberately neglect to do any act or provide information required for the purposes of the law by the Registrar or a person authorised in writing to act for him.  Furthermore under section 57 the governor of the colony was empowered to make rules to govern various affairs of society.  The cooperative society’s rules were made in exercise of this power.

Rule 23 imposed a duty on the committee of every registered society or some officers of such society appointed for the purpose by the committee to prepare yearly in the form prescribed by the registrar an account showing that income and expenditure for the year a  profit and loss account and a balance sheet.

Rule 32 empowered the Registrar to prohibit or restrict transactions of any registered society with none members when proved to his satisfaction that such transactions were opposed to cooperative principles or involved and abuse of any of the privileges accorded to registered societies.

The ordinance contained examples of cooperative ideals beginning with a definition of a cooperative society.   A member’s shares in the society’s share capital was limited to one fifth or less.  Every member was to have one vote in the affairs of the society except in the case of a society which was a member of another society.

Note however that cooperatives mainly comprising of Europeans were exempted from control by the Registrar.

2.                  Demobilised Soldiers

This was yet another factor prompting the colonial government to serious consider the starting of cooperatives among Africans after the 2^nd World War.   There was a need to provide employment to demobilised African soldiers.  Ex Military personnel, it was considered would be absorbed as members of the operative staff as well as active co-operators.  This was the view expressed by W H K Campbell an Ex-Registrar of Cooperatives in Ceylon who had been commissioned by the British government to study

Possibilities of cooperative development in Kenya.

3.                  Attitude of British Labour Government

The government which came into power in 1945, the new administration brought about many welfare changes for colonies after the war.  A new economic approach was devised which had a positive attitude towards the formal development of cooperatives.  The role of cooperatives in countries where they were introduced by the British was seen as being twofold.

a.                   To provide members with economic advantages which they would be unable to acquire as individuals; and

b.                  Instilling thrifts, self-help, fair dealing and practical training in application of democratic processes through association in cooperative societies.

4.         African Initiatives

Africans were engaged in efforts to uplift their lot from the low economic position without assistance from the colonial administration.  Many ventured into trading enterprises and formed regional and trading associations in competition with Asians and Europeans.  However, these associations were not genuine cooperatives but because they aimed at fighting racist organisations and also because their members were business people who stood to benefit from their organisations as much as the Europeans.

In spite of these however, the formation of cooperatives among the emerging African middle class as a way of defending their interest against those foreigners was an important factor in the development of genuine cooperatives later because of a sense of pride and self-confidence that characterised these early African organisations.  In fact in the 1950’s some societies demonstrated a remarkable degree of independence in running their affairs without seeking advice or help from the department of cooperatives. 

Campbell expressed a view that customs for example those that promoted group work on the land appeared to form the basis for cooperative development.  An important aspect of cooperative development among Africans became the encouragement of group farms and group activities.

Many cooperatives were formed for marketing purposes and in those areas where such cooperatives thrived, group farming of cotton was introduced on an experimental basis on the assumption that indigenous customs of the ethnic communities involved were conducive to modern cooperation.  By 1950 however, the African Cooperatives formed were few in number.

5.         Land Reform and Cooperatives

In the 1950 the colonial government embarked on land reform aimed at individualisation of land tenure from communal to individual type as recommended by the Swynnerton Plan.  The encouragement of cultivation on clearly demarcated land especially of cash yielding crops went hand in hand with the encouragement of cooperatives for the purpose of marketing the produce.  Efforts towards a closer integration of African and European Agricultural Cooperative Marketing were also made.  By the late 1950’s the greater number of cooperatives were engaged in the marketing of agricultural produce.  In fact they “traditional function of cooperatives had continued to be agricultural marketing cooperatives.   By comparison other types of societies such as consumer and credit societies were of minor significance.

6.         Post Independence Developments

By the early 1960’s cooperatives had began to take root in communities.  With financial help from British government and the World Bank, a massive settlement of landless was carried out in the large scale farming areas.  Agricultural societies were created to assist the new settlers.  Some politicians asked people to form cooperatives in order to purchase farms formally owned by European Settlers.  Other people decided to revive group production schemes in sugarcane and cotton growing areas in spite of their failure in the 1940’s.  Many sugar and Cotton cooperatives were created to facilitate these skills.  The term “movement” to describe cooperatives in Kenya became justifiable around 1963 the year of attainment of independence.  Unfortunately the often haphazard creation of cooperatives brought about many problems to the movement.  Many of them were not economically viable and the department of cooperatives was handicapped in dealing with the rapid increase.

By the end of 1967 there were 1783 cooperatives on the register as compared to 847 in 1960.  Lack of management capabilities in these societies became a major drawback. 

By the mid 1960’s the situation in the movement had deteriorated due to inadequate administrative capability both in the department of cooperatives and within the cooperatives themselves.  Steps had to be undertaken to ensure efficiency.

THE COOPERATIVFE SOCIEITIES ACT 1966 & COOPERATIVE SOCIETIES RULES 1969

A major step undertaken to ensure efficiency in the cooperative management was the enactment of the 1966 Cooperative Societies Act replacing the 1945 ordinance.  It embodied stern measures of control vested in the Minister and Commissioner of Co-operative Development to curb malpractices which had become rampant in cooperatives.  The government was given wider supervisory powers than those conferred under the 1945 ordinance an extensive administrative machinery under the Commissioner of Cooperative Development was created comprising a deputy commissioner, Assistant Commissioner, Senior Cooperative Officers and other junior cooperative officers.

Extensive powers were vested in the commissioner and a list of offences was created to permit the commissioner a consolidation of the power.  Failure to comply with the provisions of the Act and wilful performance of any Act which required the consent or approval of the Commissioner without having first obtained such approval became offences carrying a punishment of either a fine or imprisonment.

The Act also conferred on the Commissioner the power to surcharge in order to ensure recovery of funds and property of the society misapplied or retained by any person participating in the management and organisation of a society.  Provision was also made to allow for simultaneous criminal proceedings in the event of such misapplication or retainer and for breach of trust in respect of society property.

Important controls were also introduced regarding financial management particularly as part of the rule making power of the Minister which had formally been exercised by the governor in council under the 1945 ordinance.  In addition to the matters outlined in the 1945 legislation the Minister’s rule making power was extended to cover provisions relating to the management of societies finances.

Of particular importance in this connection was the power to make rules on the form of the final accounts and balance sheet to be prepared annually and any other statements and schedules relating thereto. 

The Act established an audit and supervision fund and a cooperative society’s liquidation account.  Furthermore provision was made that any negotiable instrument and any order for goods or services in excess of a specified amount by a registered society shall be ineffective unless countersigned by the commissioner or a person nominated by him for that purpose.  There was also a requirement that any annual estimate of income and expenditure of a registered society shall be submitted to the commissioner for approval and that these shall be ineffective until so approved.

Provision was made that no graded employee of a cooperative union shall be appointed except with the approval of the commissioner.  Prescription of fees to be paid on application and registration and other acts were to be done by the Commissioner or his representatives under the Act.

Pursuant to the powers to make rules the Minister made the Cooperative societies Rules in 1969.  The Rules made provision with respect to the following:-

1.                  Registration of Cooperatives and maintenance of related documents;

2.                  Contents of by-laws and procedure for amendment;

3.                  Membership of a society;

4.                  Maintenance of books;

5.                  Services to be rendered by District Co-operative Unions;

6.                  Financial Control through general meeting, Special General Meeting, Committee board of representatives and employees

7.                  Property and funds of the society

8.                  Arbitration.

The Act and the Rules had a strong bias towards agricultural cooperatives and remained largely intact despite the expansion of cooperatives in non-agricultural activities.

The Sessional Papers released since 1970 repeatedly mentioned cooperatives as players in the social and economic development of the country for example the Sessional Paper Number 4 of 1987 on renewed growth through the cooperative movement quoted impressive figures.  For instance at the time of its publication there were 3,500 registered cooperatives with a membership of more than two million people and an annual turnover of 6 billion Kenya shillings.

The guidelines on future development stated in the sessional papers were towards the engagement of cooperatives in diverse activities in the export market, the informal sector, the development of low cost housing, among other activities.  Despite the importance, cooperatives were faced by managerial incapacity and these justified state’s involvement and control.

STATE CONTRIBUTION TO THE DEVELOPMENT OF COOPERATIVES IN KENYA

As noted State involvement in cooperatives commenced in 1931 when the first cooperative ordinance was enacted in order to regularise their operation.  Before this or prior to this cooperatives were registered under business law.  the increased intervention occurred in 1945 when a new Act came into being and the first Commissioner for Cooperatives was appointed in 1946. 

The 1945 ordinance was the turning point for cooperatives.  For the first time the indigenous Kenyans were not only officially allowed to form and join cooperatives but were also allowed to grow cash crops like coffee which was earlier restricted to the white settlers. 

By 1963 when Kenya attained Independence there were 1,030 cooperate societies with a turnover of Kenya Shillings 100,000,000/-.  Immediately after independence it was state policy to involve people in the economic activities of the country.  Cooperatives were a handy institutional framework through which many indigenous Kenyans could participate.  At the time however, cooperatives were faced with several problems namely:-

(a)                Lack of integrity on the part of some union or society committee members and employees of the societies

(b)               Misappropriation and Misapplication of funds;

(c)                Excessive Costs in handling of member produce;

(d)               General inefficiency in the business operations of the movement.

The main causes of these problems were:

(i)                 Lack of basic understanding among the cooperatives about the purpose and functions of the movement;

(ii)               Lack of technical and managerial skills;

(iii)             Lack of knowledge and experience on the part of employees.

Arising out of these and the fact that government’s acceptance of the movement as an important institutional framework with a great role to play particularly in the small scale farming areas, the state was categorical that it will continue to encourage the movement.  This view was formalised and expounded in the first 3 development plans mainly, 1970, 1974 and 1978.

The aim was to ensure that public and cooperative sectors grow rapidly to embrace a large section of the economy.   Cooperative policies were therefore instituted to firstly

1.                  enable cooperatives to improve their performance;

2.                  Enjoy marketing monopolies;

3.                  Consolidate the movement in those areas where it was active.

In order to enable the movements to take off the state strengthened and intensified its supporting machinery for guiding and controlling it in order to curb malpractices.  Consequently as noted the 1945 Cooperative Ordinance was revised giving way to the Cooperative Societies Act Cap 490 of the Laws of Kenya in 1966.  With that Act the State was able to be involved and therefore influence the day to day activities of the society.  It was also able to inject massive assistance to the movement in the form of finance and technical expertise.

In order to provide this support the state entered into agreement with several donors who included the World Bank, the USA, Germany and the Nordic Countries who assisted in technical expertise financed as loans and grants to needy societies.

The extensive status system enabled the role of cooperatives particularly in Kenya’s agricultural sector to be wide and varied.  Most of the production and marketing within small scale holdings was organised through cooperative societies.  Official statistics from the 1995 Economic Survey indicate that as at 1994 the cooperative movement in Kenya comprised of some 6276 registered societies of which 1047 were dormant and 122 were in the process of being liquidated.

The active societies were therefore 5,107 out of which 44% were agricultural cooperatives.  Of the total cooperative turnover in 1994 of KShs. 10 billion, the agricultural cooperatives had 75% thereof.  For certain crops cooperatives accounted for substantial percentage of gross farm reserve.  For example according to the economic survey of 1995, in 1994 cooperative accounted for 65% percent of gross farm revenue from coffee, 67% in the case of pyrethrum, 22% in the case of Dairy and 75% in the case of cotton.

The cooperative system was thus an important framework for production and marketing of agricultural products in Kenya.  State support to the agricultural through cooperatives was used to finance development of specific crop enterprises.  Management of cooperatives was one of the biggest problems within the movement.  Here the state persistently injected different type of assistance but the area of management remained one of the main concerns.

Through the Nordic cooperative project, substantial technical assistance was availed to cooperatives for the development of management and accounting systems in addition to seconding management experts in cooperative societies.

The government run cooperative college of Kenya was established to train both officers of the movement and the government.  One of the indicators of the interest that the state has had on the development of cooperatives is the extent to which they have been involved in industrial development.

In building and construction the state developed detailed policies that enabled cooperatives to own large office blocks in Nairobi and other towns.  One of the areas in which cooperatives did not take root despite government assistance through grants and design and printing operating manuals was the consumer cooperatives.

Partly as a result of state promotion of SACCOS         Cooperatives now play a significant role in the finance and banking sector where they are involved in the mobilisations of savings from a large number of small savers for various types of investments.  This cooperative involvement is led by the cooperative bank which is one of the largest local banks in Kenya today.

The other actors in this sector are the Savings and Credit Cooperative Societies (SACCO)  even in the Finance and Banking Sector, cooperatives are significant players.  Government has promoted cooperatives in various sectors of the economy with varying degrees of success.  They will be found in activities such as handcrafts, Jua Kali, Transport and hotel business.

They are encouraged to venture into all kinds of income earning opportunities for their members benefit.  After independence the states promoted land buying cooperatives through a special arm of the Ministry of Cooperative Development and administered by an Assistant Commissioner of Settlement.   This office enabled many cooperatives to acquire land for their members.  When that was done the land buying cooperatives were transformed into marketing societies and the Cooperative Settlement Office was reorganised and absorbed within the other functions of the Ministry of Cooperative Development.

By recognising cooperatives as an important economic institutional system and promoting it through both technical and financial support, this has not only enabled members to acquire wealth and alleviate poverty but also created employment to a large section of the population.

One can say that the state has played a major role in the growth and development of the Kenya cooperative movement.  It was recognised that the moment had now reached a stage of development where it should now shoulder its own responsibilities.  It also became clear that the past nurturing of the cooperative movement and the extensive benevolence of the government was no longer justified or sustainable.  Furthermore a continually supported movement was not likely to be self sustaining in the long run because of the dependency syndrome.

It became the policy of the state to liberalise the cooperative sector in order to professionalize and democratise the management of cooperatives and make them self reliant, self controlled and commercial viable organisations.  This lead to the enactment of the Cooperative Societies Act No. 12 of 1997 which came into force on 1^st June 1998 and the Cooperative Societies Rules of 1998 and these replaced the cooperative societies act Cap 490 Laws of Kenya of 1966 and the Cooperative Societies Rules of 1969.

FUTURE ROLE OF THE STATE IN COOPERATIVE DEVELOPMENT & MANAGEMENT AS OF 1997

We have seen that the rapid growth in cooperatives since independence was fuelled by heavy government support through direct assistance and subsidised services.  These created problems related to dependency which made be summarised as follows:-

1.                  Direct intervention in the day to day management of cooperatives highly compromised the universally accepted cooperative principles and values;

2.                  Within the Agricultural Sector the 60% rule compelled producers within the society area of operation to sell the produce to the society.  This created cooperative monopolies which were not faced by competition and therefore had no incentives for initiative efficiency and effectiveness as they were assured of their income since they normally took the first charge on crop proceeds;

3.                  Heavy state involvement hindered emergence of member controlled and member managed cooperatives as members came to rely on the state to safeguard their interests through curbing mismanagement of funds and other resources.  These compromised cooperative values that include self-help, self-responsibility, democracy, equality and equity.

4.                  AS a result of continued involvement in cooperatives in the form of free technical and financial assistance as well as development of management and financial systems, the movement came to be almost wholly dependant on the government.  Obviously this hindered the consolidation of the cooperative values of self-responsibility, self-reliance and self-control.

5.                  Voluntary association is what renders cooperatives into a movement.  Heavy state involvement hindered development of cooperation between cooperatives.  They did not develop strong horizontal linkages between themselves.  The vertical linkages tended to end at the union level with only specific activity unions at the National level.  Government involvement therefore had to be substantially reduced.  It had to be re-orientated in order to democratise and professionalize their management to conform to the true definition of a cooperative and be operated and managed in accordance with internationally accepted cooperative values and principles. 

With liberalisation which emphasizes free market economy and the divesting of the state from involvement in business enterprises, the free technical and financial assistance to cooperatives could no longer be sustained.  The policy was therefore to liberalise the cooperative movement in line with the national liberalization policy.  This is as of that time in 1997-1998.  This liberalisation had to involve the revision of the Cooperative Societies Act Cap 290 Laws of Kenya and with its revision the Ministry of Cooperative Development had to be restructured to conform and be able to effectively address the newly emerging needs of the liberalised movement.

Under the old Cap 290 the Ministry of Cooperative Development carried out the following functions:

1.                  Cooperative Policy and implementation;

2.                  Cooperative registration and extension services;

3.                  Accounting and Auditing for Cooperative Societies;

4.                  Cooperative Education and Training;

5.                  Cooperative Credit and Finance;

6.                  Cooperative Bank.

These functions entailed involvement of the Ministry in the following duties and responsibilities:

(a)                Registration of Societies;

(b)               Enforcement of the Cooperative Societies Act;

(c)                Policy formulation and Implementation;

(d)               Advisory management services;

(e)                Audit supervision;

(f)                Inspection, enquiries and investigations;

(g)                Liquidation of societies;

(h)               Education and Training;

(i)                 Auditing, Accounting and Management Systems;

(j)                 Cooperative Credit and Finance.

(k)               Cooperative Bank ;

(l)                 Amalgamation and Subdivision of Societies;

(m)             Approval of Budgets, capital expenditure and allowances;

(n)               Hiring and firing of graded staff;

(o)               Removal and Election of Management committees after inquiry;

(p)               Inspections and Investigations;

(q)               Settlement of Disputes and Institution of Charges.

In order to professionalize and democratize the management of cooperatives and enable them to be member based and member controlled, self-reliant organisations which would be in a position to compete more effectively with the rest of the private sector, the state involvement in the day to day management was to be reduced substantially.  Thus the following functions and duties which were performed by the ministry of Cooperative Development were to be transferred gradually from the Ministry to the Cooperative movement.

These are:

(i)                 Education and Training;

(ii)               Auditing, Accounting and Management Systems;

(iii)             Cooperative Credit and Finance;

(iv)             Cooperative Bank;

(v)               Approval of Budgets, Capital expenditure and allowances;

(vi)             Hiring and Dismissal of graded staff;

(vii)           Removal and Election of Management Committees after inquiry, inspections and investigations; and

(viii)         Settlement of Disputes.

Once these were transferred it was envisaged that the role of the Ministry will be largely regulatory and facilitative in nature aimed at creating a conducive environment for the development of an autonomous and self-sustained cooperative movement.  Thus the main duties are responsibilities of the Ministry were to be as follows:-

1.                  Registration and liquidation of societies;

2.                  Enforcement of the Cooperative Societies Act;

3.                  Formulation of Cooperative Policy;

4.                  Advisory and creation of a conducive environment for cooperative growth and development;

5.                  Registration of Cooperative audits;

6.                  Carrying out inquiries, investigations and inspections.

Hence the revision of Cap 490 and its replacement by the 1997 Act.  That Act removed all those clauses that allowed government involvement in the day to day management of cooperatives.  It incorporated other clauses that clearly defined cooperative principles and values and those that safeguard the interests of all stakeholders including members and creditors.  It allowed for autonomy in the cooperative movement where they are free from government involvement in their daily affairs.  But it was envisaged that the government would continue to facilitate procurement of external donor assistance under the government’s normal laid down procedures and regulations.

Soon after its enactment there was a draft proposal to amend that Act in 2001 i.e. the Cooperative Societies Amendment Bill of 2001.  in late 2003 there was a proposal for a Cooperative Societies Amendment Bill 2004 and there is also a Bill trying to regulate SACCOS the Cooperative Societies and Credit Societies Bill 2004.  All these are before Parliament.  Is this an attempt to re-instate state control over cooperatives and to de-liberalise the cooperative movement once more.

Benefits of cooperative organizations

Basically cooperatives are vehicles for social economic development contributes to economic growth and development in many ways. The major benefits that come out of cooperative organizations as be summarized as follows:

1.          collection, transportation, processing and marketing agricultural produce.

2.          mobilization of savings and channeling the income of individual members for specific developments projects.

3.          support to agricultural production through distribution of farm inputs.

4.          dissemination of applied technology to members

5.          provision of credit to member for defraying urgent expenses at fordable rates and costs.

6.          assisting in income distribution by participation through enabling large sections of the population to engage in various income generating economic activities.

7.          creating employment directly through engagements for various cadre of staff and more importantly self-employment as farmers and artisans.

8.          a cooperative is an institutional framework through which the following are achieved:

(a)                 otherwise small and uneconomic surplus can be harnessed by taping economies of scale

(b)                 poverty can be alleviated by planning, organizing, implementing and managing income-generating activities.

(c)                 Agricultural producers can reap maximum benefits out of their produce by eliminating middle men.

(d)                 Social control mechanisms become an acceptable substitute for physical assets as collateral for loans

(e)                 Development funds are channeled to individual members

(f)                  Members can be educated on economic and social issues affecting them including development of entrepreneurial skills

(g)                 Wealth and capital can be created and owned jointly by large groups of low-income earners.

(h)                 The national economy can be indigenized since cooperative members tend to be largely indigenous people.

Structural framework of the cooperative movement in Kenya

The structure of the cooperative movement is a four-tier structure. The Cooperative Societies Act recognizes these four specific categories of society, namely:

(i) the primary

(ii) the secondary

(iii) the national cooperative organizations (NACOs)

(iv) the apex societies

Primary societies

The term primary society has been defined by the Act to mean “a cooperative society whose membership is restricted to individual persons”.

It is created by individuals at the lowest level of structures of cooperatives. The individuals have common economic interests and a desire for promoting those interest by pooling their interests together and working as a team in order to minimize the costs of doing the same thing as individuals.

For example, artisans may find that as a group organized formally, rather than as separate individuals they are in a better position to buy in bulk materials necessary for their trade since bulk purchases attracts discounts. They are better able to organize reliable marketing outlets easily as a group since they will produce more than if they worked as individuals. So they may form a primary cooperative to enhance their objectives.

Individuals may also form savings and credit societies which will enable then to pool their money from which they can borrow in time of need. Individuals in SACCOs are able to borrow money from their societies at more reasonable terms than they would obtain from commercial banks.

Individual farmers may form a primary society which will enable them to market their produce collectively and to share facilities such as factories which can serve all of them.

Primary societies are the backbone of cooperatives in Kenya. Examples include:

1.       Harambee Cooperative Savings and Credits Society Ltd, formed mainly by the employees of the Office of the President;

2.       Afya Cooperative Savings and Credit Society Ltd, formed by employees of the Ministry of Health.

Second Society

The Act defines a secondary society as “a cooperative society whose membership is comprised of primary societies”.

The Act further defines a cooperative union to mean “a cooperative society whose membership is restricted to primary societies”.

Similarly a district cooperative union is defined by the Act to mean “a cooperative union whose membership is restricted to primary societies having their headquarters in a particular district.”

The NACCOs

The NACCOs offer specialized services to their affiliates. The services include insurance and banking. Currently there are 9 NACCOs, namely,

1.          Cooperative Bank of Kenya ltd

2.          Kenya Union of Savings and Credit Cooperative Ltd (KUSCCO)

3.          Kenya Rural SACCO Societies

4.          National Housing Cooperative Union Ltd (NACHU)

5.          Kenya Cooperative Creameries Ltd (KCC)

6.          Kenya Planters Cooperative Union Ltd (KPCU)

7.          Kenya Farmers Cooperative Association Ltd (KFA)

8.          Cooperative Data and Information Centre (CODIC) Ltd

9.          Cooperative Insurance Company Ltd(CIC)

The apex societies

The Act defines an apex society as meaning “a cooperative society the membership of which is restricted to cooperative unions and includes a society established to serve the cooperative movement by providing facilities for banking, insurance and the supply of goods and services.”

The apex organization in Kenya is the Kenya National Federation of Cooperatives. It is the mouthpiece for Kenyan cooperatives to preserve and propagate both in the country and abroad the cooperative principles and values on which the movement was founded.

Type of activities in cooperative societies

Primary societies are engaged in a wide range of activities. There are seven broad categories although the list is not exhaustive, namely

1.          agricultural cooperatives

2.          savings and credit societies (SACCOs)

3.          housing cooperatives

4.          service cooperatives

5.          industrial cooperatives

6.          consumer cooperatives

7.          multipurpose cooperatives

Agricultural cooperatives

Agricultural cooperatives have continued to occupy the most important part of the cooperative movement in Kenya. They include farm purchase cooperatives and agricultural marketing cooperatives created to collect, process and market farm produce. Most farm purchase cooperatives were created immediately after independence to enable their members purchase farms owned by European settlers.

Agricultural cooperatives are formed to assist members with collection, processing, storage and sale of produce. They also assist members to obtain credit facilities, farm inputs and farm machinery which are normally arranged through cooperative unions. Many of them are involved in the production of crops

The saving and credit cooperatives (SACCOs)

A savings and credit society affords members an opportunity for saving regularly accumulating savings and thereby creating a pool from which they can borrow exclusively for production purposes at fair and reasonable rates of interests than would be obtained in financial institutions. Most  SACCOs are found in urban areas among the salaried workers in the formal sector including government ministries, parastatals and other organizations. Members contributions are deducted from salaries on a regular basis and remitted to the society. Loan recoveries are similarly handled. 

SACCOs popularity arises from their ability to lend money without demanding substantial security. Usually a member’s shares, coupled by a guarantee by society members are considered adequate security for a loan and loans attracts a low interest and a borrower may receive 3 to 4 times his shares and have 36 to 48 months to repay their loans.

SACCOs have also invested in projects such as building of office blocks and residential houses. Their other investment include hotels, warehouses and other commercial properties.

Housing cooperatives

A housing cooperative society is formed in order to provide living accommodation for its members for fair and reasonable prices. It can also be created to lend money to its members to enable them to construct houses.

Service coperatives

A service cooperative is created with the objective of providing a service, for example in insurance or transport. Thus a group of people who own matatus or buses and other conveyances can form a cooperative or a transport cooperative to ferry passengers and goods.

Industrial cooperatives

These are formed by persons who have special skills in the manufacture of or production of particular commodities who produce these commodities and the society arranges for purchase of materials, grading, transportation and marketing of the product.

Consumer cooperatives

Consumer cooperatives are formed to obtain and to supply to members articles of good quality for use of members, e.g. household goods. A society would normally establish a shop or shops where it sells the particular goods.

The multipurpose cooperatives

A multipurpose cooperative society is formed to carry out a wide range of activities. For example, it can be formed to supply farm implements, market produce of members, carrying out construction and to provide transport. The multiplicity of its activity would be reflected in the society’s byelaws.

Formation of the cooperative society under the Act

1. In relation to officers:

Section 3 of the Cooperative Societies Act  provides for officers of cooperative societies:

(i)There is a Commissioner for Cooperative Development who is responsible for the growth and development of cooperative societies;

(ii)There shall be such number of Deputy Commissioners for Cooperative Development and other officers as the Minister may deem fit to be appointed by the Public Service Commission

(iii)There is a Registrar of Cooperative Societies

(iv) There shall be a Deputy Registrar of Cooperative Societies and such number of Assistant Registrars as may be necessary for the purposes of the Act. The Commissioner and the Registrar are public officers designated by the Minister for that purpose.

(v) The Minister may by notice in the Kenya Gazette and without prejudice to the power of the Registrar or Deputy Registrar to exercise such powers or perform such duties, delegate any of the powers or duties conferred on imposed on the Registrar to any Assistant Registrar.

Registration of cooperative societies

In order for a society to be registered as a cooperative, it must satisfy the following requirements:

1. It must have for its objects the promotion of the economic interest of its members in accordance with cooperative principles which are outlined under the Act.

If it is a primary society, it must consist of at least 10 persons all of whom qualify for membership of the society according to the Act, section 14 thereof.

If it is a cooperative union it must consist of 2 or more registered primary societies.

If it is an apex society it must consist of 2 o more secondary societies.

An application to register a society is made to the Commissioner in the prescribed form and signed:

1)         in case of primary societies by at leas 3 persons qualified for membership of the society under section 14.

2)         in the case of a secondary and apex society by a person duly authorized on that behalf by each society or union as the case may be who are members thereof.

The application is accompanied by four copies of the proposed by-laws of the society in English and the person or persons by whom or on whose behalf such an application is made shall furnish such information with regard to the society as the Commissioner may require. If the Commissioner is satisfied that the society has complied with the provisions of the Act and rules, and its proposed by-laws are not contrary to the Act or rules, he may register the society and its by-laws under the Act.

Provisional registration

If the Registrar or Commissioner is not satisfied that the society has complied with the Act and Rules or is not satisfied that its by-laws conform with the Act and Rules and is of the opinion that steps can be and will be undertaken with due diligence by the applicants for registration to comply with the Act and Rules and make the by-laws conform, he may in his discretion provisionally register the society for such period not exceeding one year and subject to its compliance with the terms and conditions and provisions, he may specify to the applicants in writing a provisional registration enabling the society to operate as a cooperative society and while so entitled is deemed  to be a body corporate with perpetual succession and a common seal and with power to hold movable and immovable property, to enter into contracts and institute and defend suits and other legal proceedings and do things necessary for the purpose for which it was constituted.

Subject to the provisions of the Act, any reference in any written law to a cooperative shall unless the context otherwise requires include a reference to a provisionally registered society. This provisionally registered society is required to state the fact that it is provisionally registered in legible Roman letters in all billheads, letter papers, notices, advertisements and other official publications of the society and on a conspicuous sign board outside any premises where it operates.

The Commissioner may for any good cause cancel the provisional registration, specify the reason thereof and that cancellation operates as a refusal to register that society and it from henceforth ceases to be registered as a cooperative society.

At the expiration of the period specified for provisional registration if a society has not been registered in the meantime it ceases to be a registered cooperative society. Where it so ceases, the following consequences follows:

1.          The Commissioner may appoint a competent person to be liquidator.

2.          The validity of transactions entered into by that society during the period of provisional registration shall not be affected.

At any time during the period of provisional registration, the Commissioner, if satisfied that the society has complied with the Act and the Rules, and that its bylaws conform with the Act may register the society under section 5. Thereupon the society is deemed to have been registered on the date of its provisional registration.

Where a society which has been provisionally registered contravenes section 7 (3), the society and every person who purports to act as officer of the society shall be guilty of an offence and liable to a fine not exceeding 10,000 shillings or in the case of a continuing offence to 1,000 shillings for each day it contravenes.

Amendment of bylaws

A cooperative society may, subject to the Act, amend its bylaws including the bylaw declaring its name. However, no amendment is valid unless registered under the Act and for this purpose a copy of the amendment shall be forwarded to the Registrar in the prescribed manner. The company may  register the amendment if satisfied that it is not contrary to the Act of the Rules.

An amendment which changes the name of the society does not affects the rights of its members and any legal proceedings pending may be continued by the society under its new name.

When the Commissioner registers an amendment he issues to the society a copy of the amendment certified by him which is conclusive evidence of its registration. The word amendment includes the making of a new bylaw, or variation or revocation of a bylaw but not the variation of the registered address or office or society where this forms part of its bylaws.

Appeals against refusal to register

A society may appeal to the Minister against the Commissioner’s refusal to register it and its bylaws or its amendment thereof. Any society aggrieved by the decision of the Minister may appeal against that decision to the Cooperative Tribunal established under section 77 of the Act.

Note: No society shall be registered under a name identical with that of any other society or under any name likely in the opinion of the Commissioner to mislead members of the public as to its identity.

The word “Cooperative” forms part of the name of every society and the word “Limited” is the last name of any society having limited liability.

A certificate of registration or provisional registration signed by the Commissioner is conclusive evidence that the society therein mentioned is dully registered or provisionally registered unless it has been proved that it has been cancelled or terminated. This certificate must be displayed at the head office of every society. In addition, every society shall publish particulars of its registration in the Kenya Gazette. A copy of the bylaws or amendments thereof certified by the Commissioner is prima facie evidence for all purposes of registration of such bylaws or amendments. Any document purporting to be signed by the Commissioner is presumed to have been so signed until the contrary is proved.

PRIVILEGES OF REGISTERED SOCIETIES:

Under Section 12 of the Act upon registration every society becomes a body corporate by the name under which it is registered.  It has perpetual succession and a common seal.  It has the power to hold moveable and immovable property of every description.  It has the power to enter into contracts and it has the power to sue and be sued and to do all things necessary for the purpose of or in accordance with its bylaws.  The bylaws when registered by the society and its members to the same extent as if they were signed by each member for himself and his personal representatives to observe all their provisions. 

RIGHTS & LIABILITIES OF MEMBERS

First in relation to qualification for membership:

A person other than a cooperative society shall not be qualified for society membership unless the following requirements are met.

1.                  He has attained the age of 18 years;

2.                  His employment occupation or profession falls within the category or description of those for which the society was formed;

3.                  He is resident within or occupies land within the society’s area of operation as described in the relevant by-law; 

Under Section 15 there is a limitation on holding of share capital.  It is to the effect that no member other than a cooperative society shall hold more than one fifth of the issued and paid-up share capital of any society. 

No company incorporated or registered under the Companies Act and no unincorporated body of persons shall be entitled to become a member of a cooperative society except with a written authorisation through a resolution by an annual general meeting of that society.

No member of a society shall exercise any of the rights of a member unless he has made such payments to the society in respect of membership or has acquired such interest in the society as maybe prescribed by the Act or under Society bylaws.

Section 18 provides a limitation of membership to one society.  It provides that no person shall be a member of more than one society with unlimited liability and no person shall be a member of more than one society having the same of similar object.  (there is limitation to membership to how many societies one can belong to) but there is a proviso to the effect that a person who is a member of the society and carries on business on land or at premises outside the area of operation of that society maybe a member of a society in whose area of operation that land or those premises are situated not withstanding that its objects are the same or similar to those of the first mentioned society.

Section 19 provides for voting rights of members stating that each member has only one vote in the affairs of the society irrespective of the number of shares that he holds.  (number of shares is irrelevant it is a question of one person one vote.)  but there is a proviso stating that a society which is a member of a cooperative union or an apex society shall have as many votes as may be prescribed by the by laws of the cooperative union or apex society of which it is a member and may subject to such by laws appoint any member of its committee members no exceeding the number of such votes to exercise its voting power.

Shares or Transfer of Shares is provided for under Section 20 stating that the transfer or charge of the share or interest of a member in the capital of a society is subject to such conditions as to maximum holding as are laid down in section 15.  Section 15 deals with the principles that you cannot have more than one fifth of the paid up capital.  In the case of a society registered with unlimited liability a member shall not transfer or charge any share held by him or his interests in the capital of the society or any part thereof unless

1. He has held such share or interest for at least one year; and
2. The transfer or charge is in favour of the society or a member of the society;  (transfers are subject to holding the shares for one year effected to either the society or member of the society and not to strangers.

RIGHTS OF MEMBERS

A member of a society has the following rights under Section 21

1.         To attend and participate in the decisions taken at all annual general and special meetings of the society and to vote;

3. He has a right to be elected to the organs of the society subject to its bylaws;
4. right to enjoy the use of all the facilities and services of the society subject to its bylaws;
5. A right to all legitimate information relating to the society including internal regulations, registers, minutes of general meetings, supervisory committee meetings all reports, annual accounts and inventories and investigation reports at the society’s head office.

On the other hand a member has the following obligations:

(a)                To observe and comply with all the society’s by laws and decisions taken by the relevant organs of the society in accordance with its bylaws;

(b)               He has the obligation to buy and pay up for shares or make any other payments provided for in its bylaws;

(c)                He has the obligation to meet the debts of the society in case of bankruptcy in accordance with the provisions of the Act and Society bylaws.

DUTIES OF COOPERATIVE SOCIETIES

1.                  Every society is required to have a registered address to which notices and communication may be sent and is required to send to the registrar notice of every change of address within one month thereof. 

2.                  Every society is required to keep a copy of the act and rules and of its own bylaws as well as a list of its members at its registered office.  These shall be kept open for inspection by any person free of charge at all reasonable times during business hours.

3.                  every society is required to keep proper books of accounts prepared in accordance with generally accepted accounting standards and which shall be necessary to give a true and fair view of the state of affairs of the society and to explain its transactions including the following:

(a)    All sums of money received and paid by the society and the reasons thereto;

(b)   All sales and purchases of goods by the society; and

(c)    All assets and liabilities of the society.

These books of accounts are to be kept at the registered office and or such other places as may be determined by the society and shall at all times be available for inspection by any member of its supervisory committee and the auditor.

4.                  It is a duty of every society to cause its accounts to be audited at least once a year by an auditor appointed at an annual general meeting held 3 months before the end of the financial year.  Where at such meeting no auditor or auditors are appointed or deemed to be reappointed, the commissioner is required to convene a special general meeting of the society with a direction to appoint a person to fill the vacancy and his or her remuneration to be borne by the society.  Such remuneration is to be fixed by the society in an annual general meeting or in such manner as it may be determined.  The audited accounts shall include the following matters:

(a)    A balance Sheet;

(b)   A surplus and loss account; and

(c)    A cash flow statement and shall be approved by the members of the committee and authenticated by at least 3 office bearers including the treasurer of the society in accordance with its by-laws. 

Every auditor shall submit the audited accounts and balance sheet to the members in an annual general meeting convened 3 months after the end of the counting period and shall include his opinion as to whether or not the society’s business has been conducted

(i)                 in accordance with the provisions of the Act and whether the books of accounts kept by the society are in agreement therewith and give a true and fair view of its state of affairs; and

(ii)               The society’s business must be conducted in accordance with the society’s objectives, bylaws and any other decisions made by the society in a general meeting. 

The auditor has the right of access to the accounting records and all books and documents of the society and may demand such information and explanations from every officer and employee as he may deem necessary in the performance of his duties as an auditor.  The auditor has a right to attend any general meeting of the society to receive all notices and other communication relating to any general meeting which a member of the society is entitled to receive and he has a right to be heard at such meeting on any part of the business which concerns him as an auditor.  He has the power where necessary to do the following:

1.      To summon at the time of his audit any officer, agent, servant or member of the society whom he has reasons to believe can give information in regard to the transactions of the society or management of its affairs;

2.      He has the power to require the production of any book or document relating to the affairs of the society or any cash or securities belonging to the society by the officer, agent, servant or member having custody or possession of such book, document, cash or securities

Under Section 25 (9) every society shall within 30 days of the annual general meeting at such time or in such form as may be prescribed file with the registrar any annual return together with a certified true copy of the audited accounts and Balance Sheet of the society for each period of 12 months.

Under Section 26 of the Act it is provided that “any officer, agent, servant or member of the society who is required by the registrar or by a person authorised in writing by him so to do shall at such place and time as the registrar may direct produce all monies securities, books, accounts and documents belonging to or relating to the affairs of such society which are in his custody.

MANAGEMENT OF COOPERATIVE SOCIETIES

Section 27 of the Act provides that the committee of a society shall be its governing authority and subject to any direction from a general meeting of the society and its bylaws, it shall direct the affairs of the society with the following powers:

A.                To enter into contract;

B.                 To institute and defend suits and other legal proceedings brought in the name of or against the society;

C.                 To do all other things necessary to achieve the society’s objects in accordance with its bylaws.

The committee shall ensure that any payment made by cheque has been signed by such officers as the bylaws authorise and the committee shall also be responsible for the custody of all monies belonging to the society.   It is required to hold regular meetings at which the following are done.

1.                  The minutes of its previous meeting are considered and confirmed;

2.                  The accounts bank books and cash in hand are scrutinised and checked and its observation thereon recorded in the minutes;

3.                  Any loans due and owing to the society are considered and any action considered necessary in respect of such loans is authorised and recorded in the minutes; and

4.                  Any current business is conducted.

It is the committee’s responsibility to send annually to the registrar the audited balance sheet of the society and annual return.  It is further required to keep available for inspect at the society’s registered offices the following documents:

(a)                The Certificate of Registration;

(b)               A copy of the Act, rules and registered bylaws;

(c)                A list of members and

(d)               A list of Officers.

In the conduct of its affairs committee members are required to exercise the prudence and diligence of ordinary men of business and shall be held jointly and severally liable for any losses sustained through any of their acts which are contrary to the Act, the Rules, the Bylaws or the directions of any General Meeting.  It may delegate any of its duties to an officer or officers of the society but such delegation shall not absolve it from its responsibilities of running the affairs of the society in a proper and businesslike manner.

AMALGAMATION & DIVISION OF SOCIETIES

IN RELATION TO AMALGAMATION:

Section 29 of the statute provides that any two or more societies referred to as the amalgamating societies may by special resolution referred to as the Preliminary Resolution resolve to amalgamate as a single society referred to as the amalgamated society.  A copy of the preliminary resolution shall be sent to all members and creditors of each of the amalgamating societies and to all other persons whose interests in the amalgamating societies will be affected by the amalgamation.  

Any member of any of the amalgamating societies may notwithstanding any bylaw to the contrary by notice in writing given to his society at least one month before the date of amalgamation intimate his intention not to become a member of the amalgamated society.

Any creditor of any of the amalgamating societies may notwithstanding any agreement to the contrary by notice in writing given to such society at least one month before the date of amalgamation intimate his intention to demand payment of any money due to him.

Any other person whose interest will be affected by the amalgamation may by notice given to the concerned amalgamating society not less than one month before the dates of the amalgamation object to the amalgamation unless his claim is satisfied.  Not less than 3 months after the date of the meeting at which the preliminary resolution was passed a further special general meeting of each of the amalgamating societies shall be held to consider the preliminary resolution and any notices received by a member, a creditor or any other person.

At the special general meeting provision shall be made by a further resolution of the society referred to as the Secondary Resolution for

1.                  The payment of the share capital of any member who has given notice;

2.                  The satisfaction of any claims by creditors who have given notice;

3.                  the Satisfaction of the claims of such other persons who have given notice for the securing of their claims in such a manner as may be determined or directed by the registrar.

There is a proviso to the effect that provided that no member of creditor or other person shall be entitled to such repayment of satisfaction until the confirmation of the Preliminary Resolution.

Each amalgamating society made by further resolution passed by a two thirds majority of the members present and voting confirm the preliminary resolution if within such time as the registrar considers reasonable he is satisfied that the secondary resolution of each of the amalgamating societies complies with the provisions of the Act, he may register the amalgamated society and its bylaws and thereupon the following will result:

1.                  Each of the amalgamating societies shall stand dissolved and its registration cancelled;

2.                  the registration of the amalgamated society shall be a sufficient conveyance to vest the assets and liabilities of the amalgamating societies in the amalgamated society;

3.                  The remaining members of the amalgamating societies shall become members of the amalgamated society and subjected to its bylaws; and

4.                  Any shareholders of the amalgamating societies or any other persons who have claims against the amalgamating societies and whose claims were not satisfied in accordance with the secondary resolution may pursue such claims against the amalgamated society. 

If the registrar refuses the amalgamation those societies may appeal against such refusal to the cooperative society’s tribunal established under Section 77 of the Act.

DIVISION OF SOCIETIES:

A society referred to as an existing society may by special resolution called the preliminary resolution resolve to divide itself into two or more societies referred to as new societies.  The preliminary resolution shall contain proposals for the division of assets and liabilities of the existing societies among the new societies in which it is proposed to be divided.  It may also prescribe the area of operation and specify the  members who will constitute each of the new societies. 

A copy of the preliminary resolution is required to be sent to all members and creditors of the existing societies and to any other persons whose interests will be affected by the division.  Any member of the existing society may not withstanding any bylaw to the contrary by notice in writing given to the society within two months of receiving a copy of the preliminary resolution intimate its intention not to become a member of any of the new societies.

1.                   Member:

2.                   Any creditor of the existing society may again notwithstanding any agreements to the contrary by notice in writing given to the existing society within two months after receiving a copy of the preliminary resolution intimate his intention to demand payment of any money due to him.

3.                   Any other person whose interest will be affected by the division may by notice in writing given to the existing society within two months of receiving the preliminary resolution object to the division.  (3^rd parties who might be affected by the division).

After the expiry of the 3 months after the date of the preliminary resolution a further special general meeting of the existing society shall be held to consider the preliminary resolution and any notices received.  At this meeting provisions shall be made by a further resolution for the repayment of the share capital of any member who has given notice and the satisfaction of any claims by creditors who have given notice and the satisfaction of the claims of other persons who have given notice for the securing of their claims as the registrar may determine or direct.

Note that no member or creditor or other person shall be entitled to such repayment or satisfaction until the confirmation of the preliminary resolution.  The society may by a further resolution passed by a two thirds majority of the members present and voting confirm the preliminary resolution with or without changes as in the opinion of the registrar are not substantial and the decision or the registrar relating to these changes is final.

If the registrar is satisfied within such a time as he considers reasonable that the provisions of the second resolution and the law have been complied with then he may register the societies into which the existing society has been divided and their bylaws.  Once that is done then the following occurs;

(a)                 The registration of the existing societies shall stand dissolved;

(b)                 The registration of the new societies shall be sufficient to vest the assets and liabilities of the existing society in the new societies as specified in the preliminary resolution;

(c)                 The remaining members of the existing societies become members of one or other of the new societies as provided by the preliminary resolution;

(d)                 Any shareholders or creditors of the existing societies and any other persons who have claims against the existing societies which were not satisfied in accordance with a second resolution may pursue such claims against one or other or the new societies.  If the registrar refuses to approve the division of an existing society it may appeal against such refusal to the cooperative societies tribunal established under Section 77.

These are the provisions under which the societies want to amalgamate themselves.

RIGHTS & OBLIGATIONS OF SOCIETIES

Number one relates to a society having a charge over members produce.  This is in relation to agricultural societies.  Here a society which has as one of its objects the disposal of any agricultural produce may enter into a contract with its members either in its by laws or by a separate document binding the members to dispose of all their agricultural produce or such amounts or descriptions of the same as may be stated to or through the society and the contract may bind the members to produce the quantities of agricultural produce mentioned therein and the contract may further provide for payments of a specific sum per unit of weight or other measure as liquidated damages for any breach of the contract and any such sum on becoming payable shall be a debt due to the society and shall be a charge upon the immoveable property of the member.  Such contract has the effect of creating in favour of the society a charge upon the proceeds of sale mentioned therein whether existing or future.

A society may on the authority of a resolution passed in general meeting pledge the produce deliverable by members under any such contract as security for loans made to it as if it were the owner.

No contracts entered therein shall be contested in any court on the ground that it constitutes a contract in restraint of trade.  (in relation with a society to have a charge over members produce)

2              Fines for violation of bylaws

Society by laws may subject to the Act and rules provide for the imposition of fines on its members for any infringement of its bylaws but such a fine shall not be imposed until written notice to impose it and the reason for it has been served on a member and he has had an opportunity to show cause why it should not be imposed and to be heard with or without witnesses.

Such a fine shall be a civil debt due to the society and shall without prejudice to any other means of recovery be recoverable summarily.  The whole or any part of such a fine may be set-off against any money due to such a member in respect of produce delivered by him to the society.  Note however that a member shall not be taken to have infringed society by laws by reason of his having failed to deliver produce to it if the failure was due to the fact that before becoming a member he had contracted to deliver such a produce to some other person and the contract had been disclosed to the society.  In fact every person applying for society membership is duty bound to disclose to it particulars of all such contracts.

3.             Society to have first Charge over debts and assets in certain cases:

Here, subject to any other written law as to priority of debt where a society has

(a)                 Supplied to any member or past member any seeds or manure or any animals feeding stuff, agricultural or industrial implements or n machinery or materials from manufacture of buildings or;

(b)                 Render any services to any member or past member or;

(c)                 Lend money to any member or past member to enable him to buy any of the things aforesaid or obtain any such services, the society shall have a first charge upon such things or upon any agricultural produce, animals or articles produced therewith with the aid of such money and that charge shall exist for such period as the loan or value of services rendered shall remain unpaid.

(d)                 Society to have first charge over members share:  It is provided that a society shall have a first charge upon the share or interest in the capital and on the deposits of a member or past member and upon any dividend, bonus or accumulated funds payable to him in respect of any debts due from him to the society and may set off any sum credited or payable to him in or towards the payment of any such debt.

(e)                 Remittance of Deductions from employees emoluments to the society and interest payable on default:  where the employer of a person who is a member of a society having with the agreement of such member and the society concerned made a deduction from his emoluments for remittance by the employer to the society concerned fails to remit it within 15 days after the date upon which the same was made, the society concerned shall be entitled after having given such employer not less than 7 days notice in writing requiring immediate payment to file proceedings for recovery of such deductions.  The notice shall be in writing and require that the employer concerned shall within 7 days after service thereof pay the sum deducted to the society and further provide that failure to pay before the period specified in the notice will lead to proceedings being taken for summary recovery of the amount concerned together with compound interest at the rate of not less than 3% per month through the courts and the action shall be taken without further notice to the employer.  (one of the least observed rules)  In proceedings instituted the society may be represented by the registrar.

(f)                  Members shares not to be subject to attachment:  The share or interest of a member in the capital of a society shall not be liable to attachment or sale under any decree or order of a court in respect of any debt or liability incurred by him and trustee in bankruptcy shall not have any claim on such share or interest provided that where a society is dissolved the share or interest of any member who is adjudged bankrupt shall vest in the trustee in bankruptcy.

(g)                 Liability of past members:  The liability of a past member of a society shall be in respect of the debts of the society as they existed at the date when he ceased to be a member and proceedings in respect thereof may be commenced within a period of two years from such date. Provided that in the case of a society with limited liability if the first audit of its accounts after his ceasing to be a member discloses that it is solvent, the financial liability of such member shall cease forthwith.

(h)                 Liability of Estate of Deceased Members:  It is provided that the Estate of a deceased member shall be liable for the debts of the society as they existed at the time of his death and proceedings in that respect may be commenced within one year of the death.  Provided that

(i)                   (i)            In the case of a society with limited liability, if the first audit of its accounts after the death discloses a credit balance in favour of the society then the financial liability of the Estate shall cease forthwith;

(ii)                                         A personal representative shall not be liable except in respect of assets in his possession or under his control;

(j)            Transfer of Shares or Interest of a Deceased Member:    On the death of               a member a society may transfer his share or interest to the following:

(i)            The person nominated in accordance with the Act and Rules;

(iii)                                        If there is no person so nominated such person as may appear to the committee of the society to be the personal representative of the deceased;  or

(iv)                                       If either of such persons is not qualified under the Act or bylaws or the society bylaws, such person specified by the nominee or personal representative as the case may be who is so qualified or may pay to such nominee or personal representative a sum representing the value of such member share or interest ascertained in accordance with any rules made under the Act or the society by laws.  Provided that

(a)                 IN the case of a society with unlimited liability such nominee or personal representative may require the society to pay him the value of the share or the interest of the deceased member ascertained in a manner  provided by the bylaws or

(b)                 In the case of a society with limited liability it shall transfer the share or interest of the deceased to such nominee or personal representative being qualified in accordance with the Act or any Rules or Society bylaws for membership on his application within one month of the death.  All other monies due do the deceased from the society shall be paid to such a nominee or personal representative.  All transfers and payments by a society made herewith shall be valid and effectual against any demand made upon the society by any other person.

(k)           Evidence of Members Interest:   any register or list of members or of shares which is kept by a society is prima facie evidence of any of the following particulars therein entered:

(i)            The dates on which the name of any person was entered in such a register or list as a member;

(ii)           The date on which such persons ceased to be a member;

(iii)          The number of shares held by him; 

A copy of any entry in a book of a society regularly kept in the course of its business shall if certified in accordance with the rules be prima facie evidence in any proceedings of the existence of such entry and of the matters transactions and accounts therein recorded.

(l)            Restriction on Production of Society Books: No officer of a society shall in any legal proceedings to which the society or liquidator is not a party may be compelled to produce any of the society’s books where the contents can be proved as herein above mentioned or to appear as a witness to prove the matters transactions and accounts therein recorded unless the court for special course otherwise orders.

PROPERTY AND FUNDS OF SOCIETIES

Application of Societies Property and Funds:

1.                   Section 42 provides that society property and funds shall only be applied for its benefit and its members benefit.

2.                   Restriction on giving Loans – this provides that a society shall not give a loan nor allow any credit to a person other than a member unless its bylaws provide for giving such a loan subject to a resolution passed at the annual general meeting.

3.                   Restriction on Borrowing:          Here a society may receive receipts loans from non-members only to such extent and under such conditions as its bylaws or rules allow.  In this connection a deposit of money under a higher purchase agreement shall be deemed to be a law.

4.                   Investments of society funds:  A society may invest or deposit its funds only in the following:

(a)                 In the Post Office Savings Bank;

(b)                 In and upon such investments and securities as are for the time being authorised for investment of Trust Funds;

(c)                 In the Shares of any other cooperative;

(d)                 With any bank licensed under the Banking Act; and

(e)                 In the stock or any statutory body established in Kenya or in any limited liability company incorporated in Kenya or in any other manner approved by a resolution at an annual general meeting.

5.             Declaration and Payment of Bonus:               Every society shall declare each year all bonuses due to members but where the bonuses are required for re-investment for capital development or for the redemption of Bonus Certificates, it shall issue Bonus Certificates to members in lieu of cash payments redeemable from a revolving fund established for that purpose.  No society shall pay a dividend bonus or distribute any part of its accumulated funds without a balance sheet and audited account and report disclosing the surplus funds out of which these are to be made.  A Society shall pay a dividend at such a rate as may be recommended by the management committee and approved by the annual general meeting.

6.             Maintenance of a Reserve Fund:     It is provided that every society which does or can derive surplus from its consumptions shall maintain a reserve fund to which may be carried such portion of the net surplus in each year as may be prescribed by rules under the Act or Society bylaws.

CHARGES BY COOPERATIVE SOCIETIES

A cooperative may from time to time charge the whole or any part of its property if its expressly empowered by its bylaws subject to approval by the annual general meeting.  Such charge shall comply with the provisions of the law applicable to it.  It is the duty of every cooperative to register with the registrar every charge created and its particulars.  Provided that registration of a charge may be effected on the application of any person interested and where the registration is effected in this way, the person registering shall recover from the society the fees paid for registration.  If any cooperative fails to send to the Registrar for registration the particulars of any charge created within the prescribed time then, unless it has been effected by some other person the society and every officer thereof shall be guilty of an offence and liable to a fine.

The registrar shall with respect to each society register in such a form as may be prescribed by or under the Act all charges requiring registration and enter in the register with respect to each of them the following particulars:

1.                   If the charge is one created by the Society, the date of its creation and if the charge was a charge on existing society property, the date of the acquisition of the property;

2.                   The amount secured by the charge;

3.                   Short particulars of the property charged;

4.                   The persons entitled to the charge;

The registrar is required to issue a certificate of registration stating the amount secured and this shall be conclusive evidence that the requirements of the Act have been complied with.  That register shall be open for inspection by any interested person on payment of the prescribed fee.  The registrar is required to keep a chronological index in the prescribed form and containing the prescribed particulars of the charges entered in the register.  Once he receives evidence to his satisfaction that the date for which any registered charge was given has been satisfied or paid, he shall order that a Memorandum of Satisfaction be entered on the register and shall furnish the society concerned with a copy.

If any person obtains an order for the appointment of a receiver or manager of the property of a society or if the registrar appoints such a receiver or manager under any powers contained in any instrument he shall within 7 days from the date of the order or of the appointment give written notice of that fact to the registrar who shall enter the notice in the register of charges.  Where such appointed person ceases to act he shall give written notice of the fact to the registrar who shall enter the notice in the register of charges.

Failure to comply with these requirement the person who has failed to do so is guilty of an offence and liable to payment of a fine. 

Every society is required to cause a copy of every instrument of charge requiring registration to be kept at its registered address.  At that address there shall be kept a register of charges, the property affected and also of floating charges on the property or assets of the society and particulars of the property charged, the amount of the charge and the name of the person entitled thereto.

Failure by any officer of the society to make the entries in any register, he shall be guilty of an offence and liable to a fine. 

All charges kept at the registered office shall be open for inspection by any creditor or member free of charge subject to such reasonable restrictions as the society in general meeting may impose.  Failure or refusal to allow inspection of the register of charges is an offence.

INQUIRY & INSPECTION

1.                   In relation to inquiry –Section 58 provides that the registrar may of his own accord and shall on the direction of the Minister or on the application of not less than one third of the members voting at a meeting of the society duly advertised hold an inquiry into the bylaws working and financial condition of any society.  All officers and members of the society shall produce such cash accounts books, documents and securities of the society and furnish such information in regard to its affairs as the person holding the inquiry may require.  The registrar shall report the findings of his inquiry by tabling it at a general meeting which shall determine what action or steps to take on such report. 

2.                   IN relation to Inspection:           Section 59 provides that the registrar may if he thinks fit on the application of a creditor inspect or direct some persons authorised by him in writing to inspect the books of the society if

(a)                 The creditor satisfied the registrar that the debt is a sum then due and he has demanded payment and has not received satisfaction within a reasonable time;

(b)                 The applicant deposits with the registrar such sum as security for the expenses of the inspection as the registrar may require.  After the inquiry the registrar shall inform the creditor of the results of the inspection. 

Where an inquiry is held or an inspection is made the registrar may make an order apportioning the expenses of the inquiry or inspection between the society, the members or creditors demanding the inquiry or inspection and the officers or former officers of the society and his decision thereof is final.  Any sum awarded by way of expenses shall be a civil debt recoverable summarily on the production of the registrar’s certificate.

DISSOLUTION OF SOCIETIES

If the registrar after holding an inquiry or making an inspection or receiving an application made by at least three quarters of the members is he of the opinion that the society ought to  be  dissolved he may in writing order its dissolution and subsequent cancellation of registration.  Any member who feels aggrieved by this order may within two months after its making appeal against it to the Minister with a final appeal to the tribunal.  Where no appeal is filed within the prescribed time the order shall take effect on the expiry of that period but where an appeal is file within time the order shall not take effect unless confirmed by the minister or by the tribunal.

When the registrar makes that order, he must make a further order relating to the custody of the books and documents of the society and the protection of its assets.  It should be noted that no society shall be dissolved or wound up except by an order of the registrar.  Where a society has less than the prescribed number of members the registrar may in writing order its dissolution and that order takes effect immediately and where registration is cancelled the society ceases to exist as a corporate body from the date the order takes effect.  

It should also be noted that Section 64 applies the provisions relating to winding up of companies to winding up of cooperative societies. 

Where a registration is cancelled the registrar may appoint one or more persons to be liquidator or liquidators of that society and all the property of such a society vests in him from the date upon which the order of cancellation takes effect.  Once a liquidator has been appointed he has the following powers:

(a)                 To appoint a day in the prescribed manner before which the creditors whose claims are not already recorded in the society books shall state their claims for admission or ask to be excluded from any distribution made before they have proved them;

a.       He has the power to institute and defend suits and other legal proceedings by or on behalf of the society in his own name or office and to appear before the tribunal as litigant in person on behalf of the society;

(b)                 He has the power to appoint an advocate to assist him in the performance of his duties;

(c)                 He has the power to refer disputes to the Tribunal in the prescribed manner;

(d)                 He has the power to determine from time to time the contributions to be made by members and past members and by the estates of deceased members to the funds of the society;

(e)                 He has the power to investigate all claims against the society and to decide questions of priority arising between them;

(f)                  He has the power to call such meeting of members and creditors as may be necessary for the proper conduct of the liquidation;

(g)                 He has the power to sell the moveable and immovable property and rights of action of the society by public auction or private contract with power to transfer the same to any person or company;

(h)                 He has the power to carry on the business of the society as far as may be necessary for the proper liquidation of its affairs;

(i)                   He has the power to determine from time to time by what persons and in what proportion the expenses of the liquidation are to be borne;

(j)                  He has the power to take possession of the books, documents and assets of the society;

(k)                 He has the power to arrange for the distribution of the assets of the society in a convenient manner when a scheme of distribution has been approved by the registrar;

(l)                   He has the power to give such directions in regard to the disposal of the books and documents of the society as may appear to him necessary for winding up the affairs of the society;

(m)               He has the power to compromise with the approval of the registrar any claim by or against the society;

(n)                 He has the power to apply to the registrar for his discharge from the duties of liquidator after completion of the liquidation proceedings.

In the exercise of his powers he has the power to summon and enforce the attendance of witnesses and to compel the production of documents by the same means and in the same manner as provided in the case of a court under the Civil Procedure Act.

The registrar is required to keep an account called the Cooperative Societies Liquidation Account with such banks as may be prescribed and to be administered in the prescribed manner.

In the exercise of his powers the liquidator is subject to control of the register and also subject to limitations imposed by the registrar and the registrar may do the following things

(a)                 Rescind or vary any order made by the liquidator and make any new order he thinks proper;

(b)                 Remover the liquidator from office and appoint a new liquidator in his place;

(c)                 Call for all books, documents and assets of the society;

(d)                 By order in writing in any particular case, limit the powers of the liquidator;

(e)                 At his discretion require accounts to be rendered to him by the liquidator;

(f)                  Procure the auditing of the liquidators account and authorise the distribution of the assets of the society;

(g)                 Make an order for the remuneration of the liquidator;

(h)                 Grant a discharge to the liquidator on application by him after completion of the liquidation proceedings;

(i)                   Require any member or past member or the society and any trustee banker, receiver, agent or officer of the society to pay deliver, convey, surrender or transfer forthwith or within such a time as he shall direct to t he liquidator any money property books or papers in his hands to which the society appear to be entitled.

(j)                  Appoint a special manager for the management of society business and determine his remuneration and what if any security he shall give for the proper performance of his duties;

(k)                 Refer any dispute between a liquidator and a third party to the tribunal if that party consents in writing to be bound by the decision of the tribunal;

(l)                   Require the indemnification of the liquidator.

The decision of the tribunal on any matter referred to it binds parties and is exercisable in the same manner as an order made by the registrar.  Where any matter is referred to a tribunal the cost of reference and award is under discretion of the tribunal.  Anyone aggrieved by an order or decision of the registrar or the liquidator may appeal against it to the tribunal within 14 days thereof.  Anyone aggrieved by the decision of the tribunal may appeal to the High Court within 14 days thereof.

Any order or decision made on being filed in court may be enforced in court in the same manner as if it were the court decision.  If the liquidator of a society whose registration has been cancelled alleges that anyone of the offences specified in the applied sections of the Companies Act has been committed, he shall report the facts to the registrar who shall if he thinks fit, institute such proceedings as may be necessary.

Any person who is convicted of an offence under the applied sections of the Companies Act shall cease to be or remain an officer of a society and shall cease to be concerned in all take part in the management of a society for a period of 5 years from the date of his conviction and if he does so he shall be guilty of an offence and liable to imprisonment for a term not exceeding 2 years.

SURCHARGE

Under Section 73 BA it is provided that where it appears that any person who has taken part in the organization or management of a society or any past or present officer or member has misapplied or retained or become liable or accountable for any money or property or the society or has been guilty of misfeasance or breach of trust in relation to the society the registrar may of his own accord or on the application of the liquidator or of any creditor or member inquire into the conduct of such person and report his findings and recommendations at a general meeting of the society convened for that purpose.

If the registrar’s findings or recommendations indicate that the person be required to repay or restore the money or property to the society with interest as determined by the registrar or to contribute such sum to the assets of the society by way of compensation for the misapplication, retainer, dishonesty or breach of trust, the matter shall be determined by the general meeting in accordance with the society bylaws.  For this purpose the registrar shall have the power to direct the secretary and/or the chairman of the society concerned to convene a general meeting of that society.  If they do not call such a meeting then they shall be guilty of an offence.

The decision taken hereof shall not prejudice the fact that the same act or default upon which the decision or action was based may constitute an offence under some other law for which the person has been prosecuted or is being or is likely to be prosecuted. 

A person aggrieved by the decision taken by the general meeting may appeal to the minister with the final appeal to the tribunal.  Any money ordered by an order made hereon to be repaid or contributed to the society shall without prejudice to any other mode of recovery be a civil debt recoverable summarily.

SETTLEMENT OF DISPUTE

Under Section 76 of the Statute it is provided that if any dispute concerning the business of a cooperative arises

(a)                 Among members Past members and persons claiming through members, past members and deceased members or;

(b)                 Between members, past members or deceased members and the society, its committee or any officer; or

(c)                 Between the society and any other cooperative society it shall be referred to the tribunal.

A claim by a cooperative society for any debt or demand due to it from a member or past member or from the nominee or personal representative of a deceased member whether such a debt or demand is admitted or not is a dispute.

Section 77 established the cooperative tribunal consisting of a chairman and deputy chairman appointed by the Chief justice , 3 members appointed by the minister or of whom shall be legally qualified  and at least one of whom shall be an advocate of the high court of Kenya.

However, no person shall be qualified for appointment as chairman or deputy chairman unless he holds or has held for a total period of not less than 5 years the qualifications specified in sections 12 and 13 of the advocates Act.  All appointments to the tribunal are by Gazette notice issued by the minister for a period of 3 years.

The officer of a member of the tribunal shall become vacant under the following circumstances;

a.                   at the expiration of 3 years from the date of his appointment;

b.                   if he accepts any office the holding of which if he were not a member of the tribunal would make it ineligible for appointment to office of a member of the tribunal;

c.                    If he is removed from membership for failure to discharge the functions of his office whether arising form infirmity of body or mind or from any other cause or for misconduct;

d.                   If he resigns from office.

In its proceedings the tribunal is not bound by the rules of evidence.  Section 78(2) provides as follows the tribunal shall upon an application made to it in writing by any party or a reference made to it by the commissioner, the registrar or any committee or officer of a society on any matter relating to the Act, the rules or bylaws inquire into the matter and make an award thereon and every award made shall be notified to the parties concerned.  The tribunal sits at such times and in such places as it may decide.  Currently they are sitting at Re insurance plaza.

The proceedings of the tribunal are open to the public except where otherwise directed by the Tribunal.  Except as expressly provided the tribunal regulated its own procedure.  Under Section 79 the Tribunal may

1.                   Make such orders for the purposes of securing the attendance of any person at any place, the discovery or production of any document or the investigation of contravention of the Act as it deems necessary or expedient;

2.                   The tribunal may take evidence on oath and for that purpose administer oaths; or

3.                   On its own motion summon and hear any person as a witness.

Any person who under paragraph 79(2)

(a)                 fails to attend to the tribunal after being summoned;

(b)                 Refused to take oath or to answer satisfactorily to the best of his knowledge and belief any question lawfully put to him in any proceedings before the tribunal; or to produce any article or document when required to do so or

(c)                 Knowingly gives false evidence or information which he knows to be misleading or;

(d)                 At any sitting of the tribunal wilfully insults any member or officer or wilfully interrupts the proceedings  or commits contempt of the tribunal shall be guilty of an offence.

For the purposes of hearing and determining any cause or matter the chairman and two members form a quorum.  Provided that where for any reason either or both of the members is or are not present for any part of the hearing the jurisdiction of the tribunal may be exercised by the chairman sitting either with one such member or alone.

A tribunal member who has a direct interest in any matter which is the subject of the proceedings before it shall not take part in those proceedings.  Any matter considered by the tribunal shall be decided by majority vote and the person presiding has a casting as well as deliberative vote.  But any point of law arising in any proceedings shall be reserved to and pronounced upon by the person presiding exclusively. All interlocutory applications shall be determined by the Chairman of the Tribunal.

However any power conferred or duty imposed on the chairman may unless a contrary intent appears be exercised or  performed by the deputy chairman if the chairman is unable to exercise or perform that power, due to illness or absence or where the Chairman authorises the deputy chairman to exercise or perform that power or duty.

Section 81 deals with appeals and is to the effect that any party to the proceedings aggrieved by any order of the tribunal may within 30 days of such order appeal against it to the High Court.  the high court reserves the power to extend that period.  upon the hearing of an appeal, the high court may do any of the following

1.                   Confirm set aside or vary the order in question;

2.                   Remit the proceedings to the tribunal with such instructions for further consideration, report proceedings or evidence as the court may deem fit to hear;

3.                   Exercise any of the powers which could have been exercised by the tribunal in the proceedings in connection with which the appeal is brought or;

4.                   Make such other order as it may deem just including an order as to the costs of the Appeal or of earlier proceedings in the matter before the tribunal.

It should be noted that the decision of the high court on any appeal is final.

Under Section 82 the Chairman of the tribunal may appoint any person with special skills or knowledge on cooperative issues which are the subject matter of any proceedings or inquiry before it to act as an assessor in an advisory capacity in any case where it appears to him that those skills are required for the proper determination of the matter.  It is an offence for any person to engage in acts or commission amounting to contempt of the tribunal and it may punish such person for contempt. 

The remuneration of the Chairman and Tribunal members  shall be determined by the minister from time to time.  Further the minister shall appoint a public officer to be secretary to the tribunal whose allowances shall be determined by the minister.  The minister is further empowered to establish one or more branches of the tribunal in any part of Kenya as he deems appropriate in consultation with the chairman.

Any person who is a party to proceedings may appear in person or be represented by an Advocate.

Section 88 deals with immunity herein, the chairman or other members of the tribunal shall not be liable to be sued in a civil court for an act done or omitted to be done or ordered to be done by them in the discharge of their duties whether or not within the limits or their jurisdiction as long as they at the time in good faith believed themselves to have jurisdiction to do or order the acts complained of.  No officer of the tribunal or other person bound to execute the lawful warrants, orders or other processes of the tribunal shall be liable to be sued in any court for the execution of a warrant order or process which he would have been bound to  execute if within the jurisdiction of the Tribunal issuing it.

GENERAL PROVISIONS:

This deals with inter alia with matters relating to remuneration of cooperative societies officers.  It specifies that no person other than a cooperative society shall use the term cooperative without a written approval of the registrar and any person who contravenes this is guilty of an offence.

This section also deals with empowerment of the minister to make rules and the minister as pursuant to this Section made the Cooperative Societies Rules of 1998.  It also empowers the minister to exempt some societies from some or all the provisions of the Act.  Finally it creates certain offences under Section 94.

Kenya Gazette Supplement no. 89 Bills Bill  no. 27

PARTNERSHIPS

Basically the statutory principles and regulations on the law of partnerships will be found in chapter 29 of the Laws of Kenya which is the Partnership Act.  It is based on the English partnership Act 1890 the main object of which was to codify the main principles of the pre-existing partnership law.  the rules of the common law and the doctrines of equity will therefore continue to apply only insofar as they are not inconsistent with the expressed provisions of the Act.

In interpreting Partnership Law therefore one must always look at the Act first and if the provisions are clear then there is no need to revert to case law.  however, the cases decided after 1890 would also help in understanding the interpretation of the Act.

Section 49 of the Partnership Act states that the rules of equity and common law applicable to partnerships in England shall apply to partnerships in Kenya. 

Section 3(1) of the Partnership Act defines the term partnership as the relation which subsists between persons carrying on a business in common with a view of profit.  If this relation exists in point of law whatever arrangements the parties may have made between themselves and however much they may have tried to reject the notion of partnership, each one of them will be regarded as a partner.  Therefore once a relationship of partnership is established even if the business was ran by one person and the other partner or partners only participated in the profits, even such sleeping partners will be as much liable as the active partner for the debts and liabilities of the firm.

The term partner  is a term of law and all partners are agents of each other.

Who is a partner?

There is no statutory definition of the word partner however, bearing in mind the statutory definition of partnership, it may safely be said that a partner is a person who has entered into the relation of partnership and since partnership is the relation subsisting between persons carrying on a business in common with a view of profit it follows that there are 3 essential ingredients in a partnership namely:

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 alleged partners.

The term business is very crudely defined in Section 2 of PA as including every trade, occupation or profession.  This is an uncertain definition but probably the term business should best be confined to what is recognised among business persons as commercial or professional business.  That is callings in which persons hold themselves out as willing to sell to all comers goods, skills, assistance or any other services.

The term common covers sleeping partners.  The term profits means the net profits that is the difference between the net returns and the outgoings of the business.  That which remains after the firms liabilities have been discharged.

Section 4 of the PA lays down the rules for determining the existence of a partnership and paragraph (b) thereof states that the sharing of gross returns does not of itself create a partnership.  However, all the rules in this Section are very negative in tone and they do not specifically state when a partnership exists but rather state when a partnership cannot be said to exist.  But until the end of the 19^th Century it was generally assumed that the mere sharing of profits constituted all recipients partners in the business.  This rule was changed in the case of Cox V. Hickman [1860] 8 HLC 268 in which it was held that although a right to participate in profits is a strong test of partnership and though there may be cases where from such participation alone partnership will be inferred yet whether that relationship exists or not must depend on the real intention and contract between the parties and not upon that one term of the contract which provides for participation in the profits.

In order to determine the existence or non-existence of a partnership one must therefore look at all the facts and not just the mere participation in profits.  Section 4 (c)  of the PA states that a receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business but the receipt of such a share or of a payment contingent on  or varying with the profits of the business does not of itself make him a partner in the business.  This is apparently a contradictory section, this apparent conflict was explained in the case of Davis V. Davis [1894] 1 Ch.d 393 by North J. who observed as follows:  “although the language in this clause appears somewhat conflicting the true meaning of the clause 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 and if the matter were to rest there it would be evidence upon which the court must find the existence of a partnership.  But if there are other relevant circumstances to be considered, they ought to be considered fairly together without attaching undue weight to any of them but drawing an inference from the whole.  It would therefore appear that the import of paragraph (c) in Section 4 is that sharing of profits without more implies partnership.  But if it is only one of several facts then all the facts must be evaluated together and no specific weight is to be given to the fact of profit sharing.”

Section 4 states by say of illustration that in particular certain facts do not of themselves constitute partnership.  These are namely

1.                   The receipt of a debt by instalments or otherwise out of accruing profits;

2.                   The receipts by a servant or agent of a share of the profit 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 a goodwill of the business; and

5.                   The receipt of a share of the profits or interests on a loan the rate of which varies with the profit by a person who has advanced money by way of a loan to a person engaged or about to engage in any business provided that the contract is in writing and signed by or on behalf of the parties thereto.

Reference may be made to the case of Re Forte Ex Parte Schofield [1897] 2 QB 455  there is dicta to suggest that where the benefit of this section is designed by a person who lends the money then the contract must be in writing and if this dicta is correct it will mean that a person who was never intended to be a partner but only a creditor may easily be regarded as a partner in the absence of a written contract and this notwithstanding that Section 4 opens by saying that the receipt of profits itself is not conclusive in determining whether one is a partner or not.  The effect of Section 4 is therefore not very clear.  In certain circumstances a person will be deemed to be a partner merely upon receipt of profits unless he rebuts the presumption by contrary evidence.

In general it reasonable to conclude that before one can tell whether or not parties to a transaction are partners one should probe into the real intentions of the parties and ask whether the parties honestly intended any advance of money from one to the other to be in the nature of a true loan or whether it was intended to be a contribution to a joint adventure.

CREATION OF A PARTNERSHIP

1.             First the law prohibits the creation of a partnership consisting of more than 20 persons. Refer to the case of Fort Hall Bakery Supply Co. V. Wangoe [1959] EA 474 this was an organisation of more than 40 people. The manager thereof misappropriated some money and an action was filed against him. It was not registered either under the Companies Act or the Registration of Business Names Act.  The court held that it could not take cognizance of it except for penal matters. 

2. A partnership may be illegal if it is formed for a purpose forbidden by law or which is contrary to good morality or against public policy.  the court will not enforce the rights of the parties against each other.  Note that purposes which are legal at the inception of the partnership may subsequently become illegal for example by the passing of an Act of Parliament.  In such cases the partnership is automatically dissolved upon the passing of such an Act.

CAPACITY OF THE PARTNERS

Generally everyone is capable of being a partner in a firm.  However as regards infants, although they often carry on business it is risky to deal with them because they cannot be sued for trade debts and can only be made Bankrupt in respect of debts which are legally enforceable against them.  In the event of partnership between an adult and an infant, if the partnership owes debts judgment for such debts will either be against the adult partners alone or preferably against the firm but excluding the infant partner.

In a judgment under any of these forms a receiving order might be obtained against adult partners and in subsequent bankruptcy proceedings partnership assets could be given for distribution to creditors. 

On attaining the age of majority an infant partner could either terminate the partnership in order to escape liability or else he will be equally liable with his adult co-partners.

PERSONS OF UNSOUND MIND

When a person of unsound mind enters into a contract of partnership and afterwards alleges that he was insane at the time and did not know what he was doing, even if he succeeds in proving the allegations the contract is as binding on him in every respect as if he had been sane when he made it unless he can prove further that the person with whom he contracted knew him to be insane so as not to be capable of knowing what he was doing.

Unsoundness of mind therefore is not of itself a bar to enter into partnership and even the subsequent insanity of a partner does not automatically dissolve the partnership but it is a ground for applying to court for dissolution of a partnership.

Upon such application if the court is satisfied that the alleged insane person is actually so, then the court will grant an injunction restraining him from interfering with the business. 

PARTNERSHIP AGREEMENTS

Legally it is not necessary that a partnership agreement should be written.  In practice however many of them are invariably reduced to writing and mostly by advocates.  The documents containing the terms of partnership is called a partnership Deed or Articles of Partnership.  Such a document is evidence that the parties will carry on business on the terms stated therein.  Some of the matters that are provided for in partnership agreements include

1.                   The name of the firm;

2.                   The nature of the business; and

3.                   The place of the business.

The nature of the partnership business should be stated because it is that business and that business alone which partners agree to carry on and in regard to which each partner is an agent of the firm and can bind his co-partners.  It is therefore imperative that there should be no possibility of conflict as to what constitutes the real business of the firm. 

Unless a definite period is stated the general rule is that a partnership lasts only during the will of the partners.  This rule is now embodied in Section 30 (1) PA which enables any partner to terminate the partnership at any time by notice to the others if no fixed period have been agreed upon for its duration.  But if there should be a provision that the partnership can only be terminated by mutual agreement, then such provision will displace the general rule and a partnership cannot be terminated at the will of a single partner.

Moreover, under Section 31 PA where a partnership entered into for a fixed term is continued after that term has expired without any express new agreement the rights and duties of partners remain the same as they were at the expiration of that term so far as it is consistent with the incidents of the partnership will.

The only exception to this principle is that where a partnership is formed to carry out some work or specific project, then the partnership is presumed to last until the completion of that undertaking which is a subject matter of the partnership.  This is rebuttable by evidence showing that the partnership was to continue even after the completion of the project.

FIRM NAME:

Section 6 of the PA states that the name under which the business is to be carried on is called the Firm Name.  partners may trade under any name they choose whether it be a combination of their own several names or a name merely descriptive of their business, so long as they do not thereby fraudulently imply that their business is identical with some other competing business.  Where the firm name does not consist of the true names of all the partners then the name must be registered under the Registration of Business Names Act.

The principle that a sole trader may carry on business either under his own name or under a fancy name applies equally to partnerships and the partners may adopt any name which is not calculated to deceive either by diverting customers from some other person or by causing confusion between the two businesses for example by suggesting that their business is an extension branch or agency or otherwise connected with the old business.

Reference may be made to the case of Ewing V. Buttercup Margarine Co. Ltd. [1917]2 Ch.d 1 in this case the Plaintiff one Andrew Ewing had since 1904 carried on a business dealing with Margarine under the name and style of  Buttercup Dairy Co.  The business was largely carried on in Scotland and to some extent in the North of England but it was gradually extending southwards.  The Defendant company was registered in November 1916 and as soon as the Plaintiff heard of it he complained promptly and sought an injunction to restrain the Defendant from carrying on business under the name Buttercup Margarine Co. Ltd.  He argued that such a name would likely cause confusion and serious injury to his business.  It was held that the name chosen by the Defendant so nearly resembled that under which the Plaintiff was trading that people who had dealings with the Plaintiff were likely to believe that the Defendant’s business was a branch of or was connected with the Plaintiff’s business.  An injunction was therefore granted.

Where the intention of the party’s is therefore expressly to deceive the courts will restrain him from using a name similar to that in existence and to that extent the court may also go as far as preventing persons from trading even under their own proper names.  Refer to the case of Croft V. Day [1843] 7 Bear 84 in this case in 1801 Charles Day and one Martin entered into a partnership as manufacturers of a substance called ‘Blacking’.  For a period of 21 years they carried on their business at a place called 97 High Holborn.  In 1808 Martin transferred his interests to Day who was given liberty to use Martin’s name for the remainder of the 21 years.  This term was afterwards extended to 25 years from 1820.  Martin died in 1834 and Day died in 1836 but the business was carried on in the name of Day and Martin by the Executors of Day.  The Defendant in this case Day who was the testator’s nephew obtained the authority of one Martin to use his name in business.  He thereupon set up a business for the manufacture of ‘Blackie’ at 901/2 Holborn Hill.  They sold Blackie in similar bottles to those used by the earlier firm of Day and Martin and those used by the Executors of Day.  The court held that no man has a right to sell his own goods as the goods of another.  Consequently although the Defendant had a right to carry on the business of a Blackie manufacturer honestly and fairly and had a right to the use of his own name and although the court will not do anything to bar him from the use of that or any other name calculated to benefit himself in an honest way nevertheless he must be prevented from using his name in such a way as to deceive and defraud the public and thereby obtain for himself at the expense of the Plaintiff an undue and unfair advantage.

The act of a new trader carrying on a new business in the name of an old trader is not in itself unlawful unless a new trader is doing so for the fraudulent purpose of passing on his goods as the goods of his rival.  However, even in the absence of a fraudulent intention if it is evident that the public will be deceived and if the effect of such a deception is that the goods of a new trader will be purchased in mistake for the goods of the older trader, then the new trader will be estopped from using that name which is likely to cause confusion.  Refer to the case of North Cheshire & Manchester Brewery Co. Ltd V. Manchester Brewery Co. Ltd [1899] A.C 83 here the Manchester Brewery Co. had carried on business under that name for about 8 years.  The Appellants bought an old business called North Cheshire Brewery Ltd and without any intention to deceive they got themselves incorporated and registered under the name North Cheshire & Manchester Brewery Co. Ltd.  The Respondent objected the use of that name and it was held that even if there was no fraudulent intention on the part of the Appellants nevertheless the public were unlikely to be deceived into thinking that the two companies had been amalgamated whereby they might place their orders with a new company and thereby cause injury to the old company.  On those facts an injunction was granted against the Appellants.

Refer also to Thomas Turton & Sons V. John Turton & Sons [1889] 2 Ch. 128 here it was held that there was no possibility of confusion in this two business names.

If the new person or firm is not using his own name that is evidence that he is acting in bad faith.  But, if there is a likelihood of the two firms being confused it matters not that there is no bad faith an injunction will be granted.

The firm name does not constitute the firm a legal entity as in the case of a company.  Therefore if a contract is entered into in the firm name the contract is construed and takes effect as if the names of all the members were substituted throughout for the firm name.  the firm name may be used in  litigation so the parties maybe sued in that name or they may sue in that name.

RELATION OF PARTNERS TO THIRD PARRTIES

The liability of partners to third parties is governed by the law of governed by the law of agency.  Generally every partner is an agent of the firm and also of each of these co-partners for the purpose of the business of the partnership  consequently all the partners are collectively liable for the acts or omissions of each other.

However just as an agent does not bind the principal if the agent exceeds his authority so a partner can only bind a firm and his co-partners when he acts within the scope of his authority.  Refer to Section 7 of PA.  Thus in order to bind the firm a partner must have had actual authority to the act in question but the term actual authority in this context is not restricted to express authority.  It also includes the general authority with which in the absence of express authority the law clothes every agents for the purpose of doing all acts which are necessary or proper to the carrying on of the principal’s business in the manner usual in businesses of a similar nature.  The general authority is the ostensible authority.

In many businesses those acts which are usual are not prohibited in which case then the actual authority and the ostensible and apparent authority are co-extensive.  In some other business it is usual to find some provision in the articles of partnership prohibiting some partners from doing certain acts.  Such is particularly the position where there are senior and junior partners.

The term junior partner includes not only those who are under 18 years but also those who have recently joined the firm.  For instance it is quite usual to find an article prohibiting a partner from buying or ordering goods the value of which exceeds a certain stated amount without the consent of the others.  In such cases the actual authority is much less than the apparent authority and if a partner in fact exceeds his actual authority by doing a prohibited act the question that arises for determination is whether what he has done is within the ambit of his apparent authority.  If it is within the ambit of that authority and even if it was expressly prohibited the firm will be bound unless a 3^rd party knew that he was dealing with a person who had no authority. 

If a dispute arises as to whether the firm is bound by the Act of a particular partner, then it must be ascertained whether the act in question is one which in the absence of notice to the contrary, the 3^rd person would be justified in regarding as being within the ostensible or apparent authority of each of the partners.  And if the question is answered in the affirmative then the lack of actual authority is immaterial.

Watteu V. Fenwick [1893] 1QB 346 in this case the Defendants who were a firm of brewers were also the owners of the business of a beer house for which they appointed a manager to run.  The licence was always taken out in the name of the manager whose name also appeared on the door.  By agreements between the defendants and the manager the manager was prohibited or forbidden from purchasing certain articles for the purpose of the business.  Such articles were to be supplied solely by the Defendants.  In contravention of these instructions the manager ordered those articles from the Plaintiff for the use in the business.  An action was filed against the Defendants for the recovery of the price thereof.  The court held that the principle is liable for all the acts of the agent which are within the authority usually confided in an agent of that character notwithstanding limitations put on that authority as between the principal and the agent.  Also an undisclosed principal is liable for the acts of the agents even those in excess of the agent’s authority.  This also applies to the area of partnerships. 

In order that a firm be bound by the act of the partner however,  3 conditions must be satisfied namely:

1.                   The acts must be done in relation to the partnership business;

2.                   It must be an act for carrying on business in the usual way;

3.                   The act must be done by the partner acting as a partner and not as a private individual.

LIABILITY

A firm is liable for torts committed against 3^rd parties by any of the partners in the cause of the partnership business.  Whereas liability in respect of debts and other contractual obligations is joint, liability in respect of Torts is both joint and several.  Thus with regard to debts and other contractual obligations, the plaintiff can bring only one action but in tort he may find separate actions against each partner.

Duration of Liability:

Liability lasts from the time one becomes a partner until dissolution and winding up of the business.  Consequently a new partner is not liable for old debts and a retired partner is generally not liable for future debts.  These principles may however be negated by the doctrine of novation which is an arrangement whereby a new partner agrees to be liable for existing debts or whereby a retiring partner undertakes to be liable for future debts.

Holding Out:

Section 18 PA provides that every person who by words spoken or written or by conduct represents himself or who knowingly suffers himself to be represented as a partner in a particular firm is liable as a partner to anyone who has on the faith of such representation given credit to the firm.  The word knowingly in this context does not include carelessness in allowing oneself to be represented.  Under Section 40 PA when a person deals with a firm after a change in its constitution, he is entitled to treat all apparent members of the old firm as still being members of the firm until he has notice of the change.  For this purpose an advertisement in a Gazette is construed as Notice only to those persons who did not have dealings with the firm before the date of the change so advertised.  Refer to Tower Cabinet Co. Ltd V. Ingram [1949] 2 KB 397  Facts were as follows:  In 1946  Christmas and Ingram entered into a partnership and carried on the business of household furniture under the name ‘Merry’s’.  The partnership was dissolved in April 1947 but Christmas continued to carry on business under the same name.  In 1948 Tower Company Limited  which had not previously dealt with “Merry’s” received an order to supply Merry’s with some furniture.  The price for the furniture was never paid and the company obtained judgment against Merry’s.  It thereafter sort to enforce this judgment against Ingram.  The only knowledge which the company had of Ingram was that his name appeared on some old headed notepaper which had been used by Christmas without Ingram’s authority in confirming an order for the purchase of the furniture and which Ingram had failed to destroyed before he left the firm.  So did Ingram knowingly suffer himself to be held out as a partner?  The court held Ingram was not liable under Section 18 because he had not knowingly suffered himself to be represented as a partner.  It therefore appears that there should be conscious knowledge that a person is being held out before he can be liable as a partner.  Negligence per se is not adequate to make him liable.

Relations of Partners Amongst Themselves:

The rights and obligations of partners may be governed by express agreement among themselves.  In the absence of any agreement, the rights and duties of partners are such as may be defined in the Partnership Act.  However, no matter what the terms of the agreement may be or even  in the absence of any agreement, there is one element which the law implies in every partnership.  This is the element of ‘UTMOST GOOD FAITH’.

Every partner is under a duty to observe utmost fairness and good faith towards his co-partners.  The fundamental basis of partnerships is that they are founded on mutual trust and confidence and where a person reposes trust and confidence in another, equity insists that such trust and confidence shall not be unused.  It is not clear whether it is open to the partners to exclude this principle but it will appear that the principle is too fundamental to be dispensed with.  If a partnership agreement provides that a partner may be expelled for breach of certain stated articles, the other partners cannot use that provision to expel a fellow partner otherwise than in good faith.  They cannot for example expel a partner if their real intention is to force the sale of that partner’s interest on an unfavourable terms.  But if there  is a blatant breach of the Articles, such a provision would justify the expulsion of the offending partner even without preliminary warning.  Refer to Clifford V. Timms [1907] 2 Ch. 236 in this case the partners carried on business as dentists.  The Articles of Partnership contained a provision that if any partner should be guilty of professional misconduct, the other partner should be at liberty to give notice in writing, terminating the partnership.  The Plaintiff as a director in an American Company of some other dental surgeons was party to publications by that company which amounted to self-puffing advertisement and which were a disparagement of other Dentists and their mode of operations.  Among other things they alleged that only their instruments were always sterilised before being used and that they had engaged a trained lady nurse to be present at all dental operations so as to prevent any scandal arising between an operator and a lady patient.  The other partners issued a notice to the Plaintiff to terminate the partnership. The Plaintiff filed this action for a declaration that the notice was ineffective.  The court held that these publications contained elements of disgraceful connotations in a professional respect.  Therefore the notice was effective and the partnership duly terminated and there was no evidence of bad faith on the part of the Defendants.

A partner is also precluded from making a secret profit at the expense of the firm.  Thus a partner is duty bound to account to the firm for any commission on any sale or even purchase of the firm’s property.  If a partner sells his own property to the firm, he should not make any profit out of that sale without full disclosure to the other partners.  However, unless expressly restricted by the partnership agreement a partner may carry on another business so long as it does not compete with and is not connected with the business of the firm and as long as he does not represent it to be the business of the firm.  He must account if he competes.  Section 33 -34 of the PA.

Section 28 PA lays down rules for determining the interest of partners in the partnership property and in relation to management, every partner is entitled to take part in the management of the business but no partner is entitled to any remuneration for acting in the partnership business.  But Section 28 applies subject to any agreement express or implied between the partners.

In many partnerships it is common practice to find an article authorising each working partner to take a salary as a manager in addition to his own share of the profits.  Since such a salary must be paid before profits are shared, it follows that the working partner or partners end up receiving more than the sleeping partners.  As an incident of management it is only proper that each partner should have access to the books of account.  Under Section 28 therefore the partnership books are required to be kept at the place of business of the partnership or at the principal place if there are more than one and every partner has a right to have access to those books to inspect them and even copy any of them.

As regards capital and profits all partners are entitled to share equally in the capital or profits of the business.  They must also share equally the losses sustained by the firm.   This rule however applies in the absence of an agreement to the contrary between the partners.  If a partner makes any actual payment or advance for the purposes of the partnership business he is entitled to interest at the rate of 6% per annum because such an advance is treated as a loan in respect of which interest is payable.  Where a partner makes any payment or incurs personal liability in the ordinary and proper conduct of the business of the firm or if he makes any such payments or incurs liability in connection with anything necessarily done for the preservation of the business or property of the firm, then such a partner is entitled to indemnity from the firm. 

It is sometimes necessary to distinguish between the partnership property and the private property of every partner.  This may be important particularly as between the partners themselves or between the creditors of the firm and the creditors of individual partners or persons taking a deceased partner’s real estate and those taking personal estate.  For example partnership business may be carried on in a building owned by one of the partners.  Is the building part of the partnership property?  The principle of law is that whether property is or is not partnership property depends on the agreement expressed or implied between the partners.

ASSIGNMENT OF PARTNERSHIP INTEREST:

Without the consent of all the partners, a partner cannot transfer his share in the partnership so as to place another person in his shoes with all the rights of a partner.  Contrast this with Section 75 of the Companies Act where company shares are freely transferable in public liability companies. 

If an article provides that one or more of the partners shall have the option of introducing a new partner either as his successor or otherwise, the other partners will be bound to accept his nominee because the consent required by law may always be given in advance.  However the law allows a partner to assign either absolutely or by way of mortgage his share in the assets and profits.  In that situation the assignee is not entitled to interfere in the management of the business or to require any accounts from the business or to inspect the partnership books or to exercise any of the rights and functions of a partner.  The only right such a 3^rd party is entitled to is to receive the share of the profits to which the assigning partner would otherwise be entitled.  However on the application by a Judgment Creditor of one of the partners the courts may under Section 27 make an order charging that partner’s interest in the assets and profits with payment of the judgment debt and for that purpose the court may appoint a Receiver of that partner’s share of the profits.

Under Section 37 this is one of the grounds for which the partnership may be dissolved by an order of the court.

DISSOLUTION OF PARTNERSHIP

A partnership may be brought to an end either by death of one or more of the partners or by dissolution.  Dissolution may be effected by agreements between the partners themselves or by an order of the court.  the circumstances in which a partnership may be dissolved without any reference to court as set out in Section 36-38 PA.  Here subject to any agreements between the partners partnership may be dissolved:

1.                   If entered into for a fixed term, it comes to an end upon the expiration of that term;

2.                   If it is entered into for a single venture or undertaking it comes to an end upon the completion of that venture or undertaking;

3.                   Where it is entered into for an undefined period then it can be brought to an end by any partner giving notice to the other partner or partners of his intention to dissolve it.  No specific period of notice is required. A partnership is always dissolved as from the date mentioned in the notice as the date of dissolution and if no date is mentioned then the partnership is dissolved on the date on which notice is received.  Once notice to dissolve the partnership has been received, it cannot be withdrawn except with a consent of all the partners. 

Under Section 37 PA subject to any agreement between the partners every partnership is dissolved as regards all partners by the death of bankruptcy of any one of them.  But it is possible that the death of a partner may not lead to termination of the partnership if the articles provide for the continuation of the business by survivors either alone or in partnership with the representatives of the deceased partners.  This also applies in the case of bankruptcy of a partner.

A partnership is in every case dissolved by the happening of any event which makes it unlawful for the business of the firm to be carried on or for the members of the firm to carry it on in partnership.

Under Section 39 PA there is dissolution by Court.  IN the absence of any agreement between the partners, any partner may apply to court for an order that the partnership be dissolved.  This procedure may be resorted to in the following cases:

1.                   When a partner is adjudged a lunatic or he is shown to the satisfaction of the court  to be of permanently unsound mind and in either of these events the application may be made on behalf of the insane person by his ‘Guardian ad litem’

2.                   When a partner other than the suing partner becomes in any way permanently incapable of performing his part of the partnership contract;

3.                   When a partner other than the suing partner has been guilty of such conduct as in the opinion of the court is calculated to affect prejudicially the carrying on of the business;

4.                   When a partner other than the partner suing wilfully or persistently commits a breach of the partnership agreement  or otherwise conducts himself in matters relating to the partnership business in such a way that it is not reasonably practicable for the other partners to carry on business with him;

5.                   When the business of the partnership can only be carried on at a loss;

6.                   Whenever in any case circumstances have arisen which in the opinion of the court renders it just and equitable that the partnership be dissolved.

Under Section 41 PA on dissolution of a partnership or retirement of a partner any partner may publicly notify the same and require the others to assist in all other acts for dissolution.  After dissolution the authority of each partner to bind the partnership and the other right of obligations of a partner continue as far as necessary to wind up the affairs of the partnership and complete any transactions which were began but not finished by the time of dissolution.

GOODWILL

Goodwill may be defined as the benefit or advantage which a business has in its connection with customers.  It is based on the probability that all the customers will continue to come back to the old place of business or will continue to deal with a firm of the same name.  It is the attractive force which brings in customers and which distinguishes between an old established business from a business at its start.

Goodwill is a partnership asset and like other assets on dissolution of the firm it must be sold so that proceeds may be applied towards the firm’s debts and liabilities.

LIMITED PARTNERSHIPS

As in ordinary partnerships the number of members is limited to 20.  In every case however, there must be at least one general partner and one limited partner.  A general partner is liable  for all the depths and obligations of the firm.  The limited partner’s liability for debts and obligations of the firm is limited to the amount he contributes. 

A body corporate may become a limited partnership if so authorised by its memorandum of association.  Unlike an ordinary partnership a limited partnership must be registered as such in accordance with the requirements of Section 4 of the limited partnership Act Cap 30 Laws of Kenya.  Registration is effected by delivering to the Registrar of Companies a statement signed by the partners and containing the following particulars:

1.                   The firm name;

2.                   The general nature of the business;

3.                   The principle place of business;

4.                   The full names of each of the partners;

5.                   The term if any for which the partnership is entered into and the date of commencement;

6.                   A statement that the partnership is limited  and that the description of each limited partner as such;

7.                   The sum contributed by each limited partner and whether  such sum is paid in cash or by which method;

If a proposed limited partnership is not registered, then it is deemed to be an ordinary partnership and every proposed limited partner will be regarded as a general partner. 

In general the common law and rules of equity applicable to partnerships as  general partnerships also apply to limited partnership subject to the modifications set out in Section 5 of the Limited Partnership Act. Under this Section a limited partner may not take part in the management of the business and he has no power to bind the firm.  If he takes part in the management he thereby ceases to enjoy limited liability and becomes liable for all debts and obligations of the firm incurred while he sought expert just as if he were a general partner.

The limited partner may always inspect the books of accounts of the firm and examine the stakes and prospects of the partnership business. Unless specifically provides in the partnership agreement, a limited partnership cannot be dissolved by the death or bankruptcy of a limited partner and the lunacy of a limited partner is not a ground for dissolution of the partnership by court.

In the even of dissolution of a limited partnership, its affairs should be wound up  by the general partners unless the court otherwise orders.  subject to any agreement between the partners, any difference arising as to ordinary matters connected with the partnership may be decided by a majority of the general partners.  With the consent of the general partners, a limited partner may assign his share in the partnership and upon such assignment the assignee becomes a limited partner with all the rights of the assignor.  The general partners are not entitled to dissolve the partnership by reason of any limited partner suffering to be charged for a separate debt.

A person may be introduced as a partner without the consent of the existing limited partner or partners.  A limited partner may not dissolve the partnership by notice.

Corporate and Partnership Law is soft law.