Professional Documents
Culture Documents
Law of Business Association Ii
Law of Business Association Ii
Law of Business Association Ii
m
3rd year. April 2005 lectures
UNIVERSITY OF NAIROBI,
FACULTY OF LAW
Lecture 1
1. F W Raifferson in Germany
2. Charles Fourier in France
3. Robert Owen in Britain
1
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 this 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.
This was the 23rd 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.
2
out income earning activities through a cooperative are many and
varied.
THE PRINCIPLES
3
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.
4
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
5
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.
6
7. Concern for the Community cooperatives work for the
sustainable development of their communities through policies
approved by their members.
COOPERATIVE LEGISLATION
7
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.
8
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.
9
involved and abuse of any of the privileges accorded to
registered societies.
2. Demobilised Soldiers
10
countries where they were introduced by the British was seen
as being twofold.
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.
11
development among Africans became the encouragement of group
farms and group activities.
12
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.
13
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.
14
The Act established an audit and supervision fund and a
cooperative societies liquidation account.
15
The Act and the Rules had a strong a strong bias towards
agricultural cooperatives and remained largely intact despite the
expansion of cooperatives in non-agricultural activities.
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
16
grow cash crops like coffee which was earlier restricted to the
white settlers.
17
1. enable cooperatives to improve their performance
2. enable cooperative enjoy marketing monopolies
3. consolidate the cooperative movement in those areas where it
was active.
18
Economic Survey of 1995, in 1994 cooperatives accounted for
65% of gross farm revenues from coffee, 67% in the case of
pyrethrum, 22% in the case of dairy and 75% in the case of cotton.
One of the indicators of the influence 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 designs and printing
operative 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 mobilization of savings from a large number of
small savers for various types of investment. The Cooperative
19
Bank leads this cooperative movement, which is one of the biggest
banks in the country.
The other sectors are the Savings and Credit Cooperative Societies
(SACCOs). Even in the finance and banking sector, cooperatives
are significant players.
20
Furthermore, a continually supported movement was not likely to
be self-sustaining in the long run because of the dependence
syndrome. It became the policy of the state to liberalize the
cooperative sector in order to professionalize and democratize the
management of cooperatives and make them self-reliant, self-
controlled and commercially viable organizations. This lead to the
enactment of the Cooperative Societies Act of 1997, which came
into force on 1 June 1998 and the Cooperative Societies Rules of
1998, and these replaced the Cooperatives Societies Act of 1966
and the Cooperatives Societies Rules of 1969.
21
cooperative values including 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 dependent 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 the
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.
22
1. cooperative policy and implementation
2. cooperative registration and extension services
3. accounting and auditing of cooperative societies
4. cooperative education and training
5. cooperative credit and finance
6. cooperative bank
23
Development, were to be transferred gradually from the Ministry
to the cooperative movement. These are
1. education and training
2. auditing, accounting and management systems
3. cooperative credit and finance
4. cooperative bank
5. approval of budgets
6. capital expenditure and allowances
7. hiring and dismissal of graded staff
8. removal and election of management committees after
inquiry, inspections and investigations
9. settlements of disputes
Once these were transferred, it was envisaged that the role of the
Ministry would be largely regulatory and facilitative in nature
aimed at creating a conducive environment for the development of
autonomous and self-sustained cooperative movement. Thus the
main duties and 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 conductive environment for
cooperative growth and development
5. registration of cooperative audit
6. carrying out inquiries, investigation and inspections
hence the revision of the Act and its replaced by the 1997 act.
24
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…
25
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.
26
Primary societies
The term primary society has been defined by the Act to mean “a
cooperative society whose membership is restricted to individual
persons”.
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.
27
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 NACCOs
The NACCOs offer specialized services to their affiliates. The
services include insurance and banking. Currently there are 9
NACCOs, namely,
28
by providing facilities for banking, insurance and the supply of
goods and services.”
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.
29
machinery which are normally arranged through cooperative
unions. Many of them are involved in the production of crops
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
30
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.
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;
31
(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
32
If it is an apex society it must consist of 2 o more secondary
societies.
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
33
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.
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.
34
deemed to have been registered on the date of its provisional
registration.
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.
35
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.
36
by each member for himself and his personal representatives to
observe all their provisions.
37
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.
1. He has held such share or interest for at least one year; and
38
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) 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.
39
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.
40
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:
41
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:
42
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:
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.
43
(d) A list of Officers.
IN RELATION TO AMALGAMATION:
44
amalgamation intimate his intention to demand payment of any
money due to him.
45
Act, he may register the amalgamated society and its bylaws and
thereupon the following will result:
DIVISION OF SOCIETIES:
46
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:
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.
47
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.
48
RIGHTS & OBLIGATIONS OF SOCIETIES
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
49
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.
50
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.
51
rules) In proceedings instituted the society may be
represented by the registrar.
52
(ii) A personal representative shall not be liable
except in respect of assets in his possession
or under his control;
53
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.
54
LAW OF BUSINESS ASSOCIATION II Lecture 6
55
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.
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.
56
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:
57
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.
58
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;
DISSOLUTION OF SOCIETIES
59
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.
60
(b) He has the power to appoint an advocate to assist him in
the performance of his duties;
61
(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;
(n) He has the power to apply to the registrar for his discharge
from the duties of liquidator after completion of the
liquidation proceedings.
62
(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.
63
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.
SURCHARGE
64
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.
SETTLEMENT OF DISPUTE
65
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.
66
tribunal sits at such times and in such places as it may decide.
Currently they are sitting at Re insurance plaza.
67
may be exercised by the chairman sitting either with one such
member or alone.
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
68
It should be noted that the decision of the high court on any appeal
is final.
69
GENERAL PROVISIONS:
70