The Hybrid Business Entity: Features of Limited Liability Partnerships in Kenya
Unsure about the right business structure? Let us address the hybrid entity that combines the spirit of partnerships with the limited liability of Companies.
Unsure about the right business structure? Let us address the hybrid entity that combines the spirit of partnerships with the limited liability of Companies.
Limited Liability Partnerships (LLPs) comprise of two or more persons with a view of making profit. Pursuant to section 6 of the Limited Liability Partnership (LLP) Act, an LLP is a body corporate with perpetual succession and a legal personality separate from that of its Partners.
Key Features of LLPs
1. Membership
An LLP must have at least two Partners and one Manager. The Partners may be natural persons or a body corporate. The manager must be a natural person.
2. Body corporate
LLPs are separate legal entities from its Partners. This means that the LLP can own property, enter into contracts, and sue or be sued in its own name. This separation of legal personality protects Partners from personal liability for business debts and obligations. Consequently, an LLP has perpetual existence, meaning it does not cease to exist upon the death or retirement of a partner. This ensures continuity of the business operations regardless of changes in partnership structure.
3. Limited liability
Partners of an LLP are not liable for the firm’s obligations and neither are they liable for each other’s obligations. The LLP shall however be liable for a partner’s wrongful acts or omissions, where the Partner was engaging in the LLP’s business or acting with its authority. In this case the liabilities shall be payable out of the property of the LLP. Additionally, individual partners in an LLP are liable for their own wrongful acts or omissions.
4. Taxation
Tax is paid through the Partner’s income and not by the LLP.
5. Compliance requirements
The Partnership is governed by the Limited Liability Partnership Deed (available here) which stipulates the rights and responsibilities of Partners. Where the Partners do not create an agreement, they shall be governed by the model partnership agreement in the Act.
LLPs are required to file annual returns with the Registrar within thirty days of the anniversary of its registration stating the declaration of solvency, its address, Manager’s details and Partner’s details.
Registration procedure
Registration is done online on the business registration portal. The process is as follows:
- Submit three proposed names. (You will receive confirmation of the approved name within 24 hours).
- Fill in the required details of the Partners and Managers, nature of business, contact details, download the statement of particulars, have it signed by the Partner(s) then upload.
- Pay the required fees and the Registrar of Companies shall at their discretion register the LLP, and thereafter issue a Certificate of Registration.
Cessation of an LLP
An LLP may cease existing as follows:
- A Court Order;
- a Partners’ resolution; or
- strike off by the Registrar for non-operation.
Cessation as a Partner
A partner may cease acting as follows:
- By agreement as provided in the limited liability partnership agreement;
- issuing at least ninety days’ resignation notice;
- upon death of the Partner; or
- on dissolution of the partnership.
Upon cessation, the Partner or the Partner’s personal representative, or the liquidator (if any), is entitled to receive the Partner’s capital contribution to the LLP and the Partner’s right to share in the accumulated profits of the LLP after the deduction of losses as at the date of cessation.
Conclusion
The limited liability, separate legal entity status, flexibility in management, and pass-through taxation make LLPs a compelling choice for businesses seeking to protect their partners' personal assets and maintain control over their business operations. LLPs are a suitable business structure for businesses in professional services such as law firms, accounting firms, and consulting firms.
How we can help
At CM SME Club, we specialize in guiding businesses in selecting the most suitable business entity for their needs. We are here to assist you in the seamless incorporation of your business. Contact us https://cmsmeclub.com/ for support in your entrepreneurial journey and let us help you propel your venture to success.
Rosario Kamuti – Associate Advocate
Published on Aug. 22, 2024, 1:10 p.m.