Partnership

A Partnership in Kenya is a business arrangement where two or more individuals or entities join together to operate a business with the goal of sharing profits, liabilities, and decision-making. Partnerships are common for businesses that require more than one person to manage operations, resources, or expertise. A Partnership is an ideal structure for businesses that require shared resources, expertise, and investment. However, it’s important for partners to establish clear agreements and understand the legal implications, especially regarding liability and profit-sharing.

Below is a detailed guide on setting up and managing a partnership in Kenya.

Key Features of a Partnership

Steps to Set Up a Partnership in Kenya

Advantages of a Sole Proprietorship

Shared Responsibility: Responsibilities and tasks are shared among partners, which can lighten the workload.
Pooling of Resources: Partners can combine their skills, expertise, and financial resources, which makes it easier to access capital and expand operations.
Simple and Low-Cost Setup: Compared to other business structures like limited liability companies, setting up a partnership is relatively inexpensive and easy.
Flexibility: Partnerships are flexible in terms of operations, management, and distribution of profits. You can agree on the terms that best suit your business.
Diverse Skills and Expertise: A partnership allows you to benefit from the diverse skills, knowledge, and experience of each partner.

Disadvantages of a Sole Proprietorship

Unlimited Liability: Each partner is personally liable for the partnership’s debts and obligations, meaning personal assets can be at risk in case of financial difficulty.
Potential for Conflict: Disagreements between partners can arise, especially if there is no clear partnership agreement or if partners have different management styles or goals.
Lack of Continuity: If one partner decides to leave or passes away, the partnership may cease to exist unless otherwise agreed upon in the partnership agreement.
Profit Sharing: Profits must be shared among partners based on the agreed terms, even if one partner feels they are contributing more than the others.

Types of Partnerships in Kenya

General Partnership: All partners share equal responsibility for the business and its liabilities. This is the most common type of partnership.
Limited Partnership: This includes both general partners (with unlimited liability) and limited partners (whose liability is limited to their investment in the business).
Limited Liability Partnership (LLP): An LLP combines the flexibility of a partnership with the limited liability of a corporation. Partners in an LLP are not personally liable for the debts of the business beyond their capital contributions.

Ongoing Compliance and Management

Tax Filing: File annual income tax returns with the KRA for both the partnership and each individual partner.
Renew Business Permits: Ensure the Single Business Permit is renewed annually.
Maintain Proper Records: Keep clear and accurate financial records, including invoices, receipts, and expenses, to ensure tax compliance and smooth operations.
Dispute Resolution: Follow the dispute resolution mechanism outlined in the partnership agreement to resolve any conflicts that may arise.