BUSINESS LAW

BY MARWA MASANDA (ADVOCATE)

LL.M. COMMERCIAL LAW
ASSISTANT LECTURER
SOKOINE UNIVERSITY OF AGRICULTURE
DEPARTMENT OF AGRICULTURAL ECONOMICS AND AGRIBUSINESS
 LAW OF
BUSINESS
ASSOCIATIONS
 Introduction
 There are many types of organizational structure a business may
decide to adopt. The main forms are;
• Sole Trader
• Partnerships
• Companies
 In establishing a legally recognized business entity, one must
consider:
1. The need to continue the business even after the death of its
creator.
2. Ownership implications.
3. Control implications.
4. Taxation.
5. Liability.

Marwa Masanda Wambura, Sokoine

University of Agriculture (Agribusiness &
Rural Law)
SOLE TRADER
 Sole trader
 Owned and run by one person who takes all the
decisions, responsibility profits and risks from the
business they run.
 It is dependent upon the life and capacity of the owner,
and imposing total liability upon the owner.
 The assets and liabilities of the owner and those of the
business are the same.
 There are no legal or tax distinctions between the owner
and business.
 A sole proprietor may do business with a trade name
other than his or her legal name.
 The sole trader must fulfill the conditions required in
operating a business.
Marwa Masanda Wambura, Sokoine
University of Agriculture (Agribusiness &
Rural Law)
 Advantages of a sole trader

1. Quick decision making.

2. Confidentiality of information/Secrecy.
3. Ease of formation and closure/Easy to start and
finish.
4. Having full control over management/ your own
business.
5. Recipient of all profits.
6. Lower taxes.
7. Less paperwork.

Marwa Masanda Wambura, Sokoine

University of Agriculture (Agribusiness &
Rural Law)
 Disadvantages of a sole trader

1. Limited resources. Lack of finance/Financial

difficulties.
2. Limited life of a business.
3. Unlimited liability/ Personal liability.
4. Limited managerial ability/ Lack of a managerial
function.
5. Can be difficult to enjoy economies of scale.

Marwa Masanda Wambura, Sokoine

University of Agriculture (Agribusiness &
Rural Law)
PARTNERSHIPS
 The law governing partnerships

1. General principles of contracts

2. Part XI of the Law of Contract Act.

2. Partnership deed or agreement or Articles of

partnership.

3. common law rules which are found in decided cases.

Marwa Masanda Wambura, Sokoine

University of Agriculture (Agribusiness &
Rural Law)
 Defining a partnership
 Partnership is the relation which subsists between
persons carrying on business in common with a view of
profit.
 Essentials of a partnership;
1. Partnership is an association of two or more
persons.
2. Partnership is a result of agreement entered by all
persons/ members
3. Partnership is organized to carry on business.
4. The agreement must be to share profit or business
5. Business must be a binding contract of mutual
agency between the partners.
Marwa Masanda Wambura, Sokoine
University of Agriculture (Agribusiness &
Rural Law)
 Operation of partnerships
1. Relationships Among Partners
A. Duties Among Partners
B. Rights Among Partners
2. Relationship Between Partners and Third Parties
A. Contracts of Partnership
B. Torts of Partnership
C. Notice to a Partner
D. Liability of Incoming Partner
3. Dissolution of partnerships
A. By agreement of the partners
B. By operation of law
C. By court order

Marwa Masanda Wambura, Sokoine

University of Agriculture (Agribusiness &
Rural Law)
 Duties among Partners
 An Fiduciary Duty – duty of utmost loyalty, fairness, and
good faith owed by partners to each other and to the
partnership.
 Duty of Obedience – duty to abide by the partnership
agreement and any business decisions properly made by
the partners.
 Duty of Care – duty owed by partners to manage the
partnership affairs without gross negligence, reckless
conduct, intentional misconduct, or knowing violation of
law.
 Rendering of true accounts and full information on all
things affecting the partnership.
 Not to compete with the partnership/ firm.
Marwa Masanda Wambura, Sokoine
University of Agriculture (Agribusiness &
Rural Law)
 Rights among partners
 Right to take part in the management of the partnership
 Sharing equally in the capital, profits and losses.
 No new partner without the consent of all partners.
 Decision by majority of partners.
 Partner to be indemnified in
 Acts done in the usual course of the business
 Acts done for preservation of the business or property of the
firm
 Rights in Partnership Property for partnership purposes.
 Right to access all information and records of the
partnership.
 Transferable interest in partnership.
Marwa Masanda Wambura, Sokoine
University of Agriculture (Agribusiness &
Rural Law)
 Enforcement of rights
1. Information
– each partner has the right;
a. Without demand, to any information concerning partnership
and reasonably required for the proper exercise of the partner’s
rights and duties, and;
b. On demand, to any other information concerning the
partnership.
2. Legal Actions
a. A partner may maintain a direct suit against the partnership or
another partner for legal or equitable relief to enforce the
partner's rights;
b. The partnership itself may maintain an action against a
partner for any breach of the partnership agreement or for the
violation of any duty owed to the partnership.
Marwa Masanda Wambura, Sokoine
University of Agriculture (Agribusiness &
Rural Law)
 Partners' Liability
 Rules for determining liability of a partner;
1. Every partner is liable for his/her own actions.
2. Every partner is liable for the actions of other
partners.
3. Every partner is liable for the actions of the
employees of the business.

 Types of liability;
1. Personal Liability.
2. Joint and Several Liability.

Marwa Masanda Wambura, Sokoine

University of Agriculture (Agribusiness &
Rural Law)
 Authority to bind partnership

 Partners with actual (express or implied) or apparent

authority may bind the partnership.
 Actual Express Authority – set forth in partnership agreement, or
other agreement, or in decisions made by a majority of partners
regarding ordinary partnership business.
 Actual Implied Authority – reasonably deduced from the nature
of the partnership, the terms of the partnership agreement, or
relations of the partners.
 Apparent Authority – acts of a partner apparently carrying on
the ordinary partnership business bind the partnership, so long
as that third person has no knowledge or notice of the lack of
actual authority.

Marwa Masanda Wambura, Sokoine

University of Agriculture (Agribusiness &
Rural Law)
 Partnership by estoppel

 Imposes partnership duties and liabilities on a non

partner who has either represented himself or
consented to be represented as a partner.

Marwa Masanda Wambura, Sokoine

University of Agriculture (Agribusiness &
Rural Law)
 Torts and Crimes
 Torts
The partnership is liable for loss or injury caused by any
wrongful act or omission or other actionable conduct of
any partner while acting within the ordinary course of
the business or with the authority of copartners.

 Breach of Trust
The partnership is liable if a partner in the course of the
partnership’s business or while acting with authority of
the partnership breaches a trust by misapplying money
or property entrusted by a third person.

Marwa Masanda Wambura, Sokoine

University of Agriculture (Agribusiness &
Rural Law)
 Torts and crimes cont…

 Joint and Several Liability

The partners are jointly and severally liable for a tort or
breach of trust committed by any partner or by an
employee of the firm in the course of partnership
business.

 Crimes
A partner is not criminally liable for the crimes of her
partners unless she authorized or participated in them.

Marwa Masanda Wambura, Sokoine

University of Agriculture (Agribusiness &
Rural Law)
 Notice to a Partner

 Binds Partnership
A partnership is bound by a partner’s knowledge, notice,
or receipt of a notification of a fact relating to the
partnership.
 Notice. A person has notice of a fact if that person;
1. Knows of it,
2. Has received a notification of it, or
3. Has reason to know it exists from all of the facts
known to the person at the time in question.

Marwa Masanda Wambura, Sokoine

University of Agriculture (Agribusiness &
Rural Law)
 Liability of Outgoing and Incoming Partner
 Outgoing partner is liable for all debts accrued before he
ceases to be a partner. He is not liable for debts after he has
ceased to be a partner.

 Liability of an incoming partner can be looked at into two

ways;
1. Antecedent Debts – the liability of an incoming/outgoing
partner for antecedent debts of the partnership is limited
to her capital contribution.
2. Subsequent Debts – the liability of an incoming partner for
subsequent debts of the partnership is unlimited.

Marwa Masanda Wambura, Sokoine

University of Agriculture (Agribusiness &
Rural Law)
 Dissolution of partnerships
 Partnership may be dissolved in the following ways;
1. Mutual agreement of parties.
2. By expiry of an agreed period.
3. After completion of a particular undertaking.
4. By order of the court.
5. By death o bankruptcy of partners or any partner
6. Occurrence of event which make it illegal to carry on
a business i.e.,
• Incapacity or inability of a partner to perform the
partnership contract
• If a partner is guilty of a conduct which is
calculated to affect the partnership pre- judiciary
Marwa Masanda Wambura, Sokoine
University of Agriculture (Agribusiness &
Rural Law)
THANK YOU FOR YOUR
ATTENTION!

Marwa Masanda Wambura, Sokoine

University of Agriculture (Agribusiness &
Rural Law)