Cooperatives and Partnerships

LBA II-CO-OPERATIVES AND PARTNERSHIPS-GPR 316
CO-OPERATIVES AND PARTNERSHIPS
GPR 316
TAUGHT BY: MR.TIM MWESELI
Page
FROM JANUARY 23RD 2014
THESE NOTES HAVE BEEN COMPILED BY JOSEPH MCDONALD PHOTOCOPYING IS PROHIBITED
PART ONE
Page
COOPERATIVE SOCIETIES

TOPIC 1: THE HISTORICAL DEVELOPMENT OF THE COOPERATIVE MOVEMENT

Basically the cooperative movement was started in the 19th Century in Europe.
The countries, which are associated with its origin, are 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 Rochdale
Lancashire who met together to trade under the name of the society.
This society succeeded so well that inspired the creation of other cooperatives.
At the time Europe was experiencing pronounced social as well as economic changes.
The most significant of these changes 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.
This is the essence of capitalism. The cooperatives formed in this early period were a reaction to
the evils of poverty created by the economic system that was being established.
Workers and peasants formed cooperatives in order to minimize 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 [IAC] 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 23rd Congress Report of 1966 entitled the Report of the Commission on Cooperative
principles, recommendations and conclusions. The principles relate to
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.
open membership,
democratic control,
limited rate of interest on share capital,
disposal of surplus,
promotion of Education and
Cooperation with other cooperative organisations
Page
i.
ii.
iii.
iv.
v.
vi.

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 agreed 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, equity and
solidarity.
In the tradition of their founders, cooperative members believe in the ethical values of honesty,
openness, social responsibility and caring for others.
The cooperative principles are guidelines by which cooperatives put their values into practice.
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 societys 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
Page
1.
THE PRINCIPLES

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.
Member Economic Participation This principle has two links

(ii)
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
Supporting other activities approved by the membership
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 members 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 co-operators establishes the following:
a. That a member of a cooperative society must be informed of all about cooperative
organisation.
b. The education cooperatives must be promoting.
c. 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.
d. 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
(i)
Page
3.

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
Cooperatives were introduced in Kenya by the European settlers in the early 20th century.
The first cooperative society the Lumbwa Cooperative Society was formed in 1908. This was
followed by several others, particularly 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 would enhance their political consciousness.

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.
Page
COOPERATIVE LEGISLATION

Cooperatives in this early period in Kenya were 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.
Page
1. The General Change of Attitude Towards African Agriculture

The depression of the 1930s and the need for self sufficiency in cereals and horticultural
products caused by the 2nd 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, cooperative 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 commissioner 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 authorized 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 societys 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 commissioner an account showing the 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 non-members when proved to his satisfaction that such transactions were
opposed to cooperative principles or involved in 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 members shares in the societys share capital were 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 [retained].
Note however that cooperatives mainly comprising of Europeans were exempted from
control by the Registrar.
2. Demobilized Soldiers
This was yet another factor prompting the colonial government to seriously consider the
starting of cooperatives among Africans after the 2nd World War.
There was a need to provide employment to demobilized 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-Commissioner 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.
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 characterized these early African organisations.
In fact in the 1950s some societies demonstrated a remarkable degree of independence in
running their affairs without seeking advice or help from the department of cooperatives.
b.
To provide members with economic advantages which they would be unable to

acquire as individuals; and
Instilling thrifts, self-help, fair dealing and practical training in application of
democratic processes through association in cooperative societies.
Page
a.

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.
Page
6. Post Independence Developments

By the early 1960s cooperatives had began to take root in communities.
With financial help from British government and the World Bank, massive settlements of the
landless were 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 1940s.
Many Sugar and Cotton cooperatives were created to facilitate these schemes. 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.
5. Land Reform and Cooperatives

In the 1950s the colonial government embarked on land reform aimed at individualization 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 1950s the greater number of cooperatives were
engaged in the marketing of agricultural produce.
In fact the 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.

By the mid 1960s 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. Hence The Cooperatives Societies Act 1966
and the Cooperative Societies Rules 1969

Page
A major step 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
Cooperative Development to curb malpractices, which had become rampant in cooperatives.
The government was given wider supervisory powers than those conferred under the 1945
Ordinance.
Extensive administrative machinery under the Commissioner of Cooperative Development was
created, comprising a Deputy Commissioner, Assistant Commissioner, Senior Cooperative
Officers and other lower level cooperative officers.
Extensive powers were vested in the Commissioner and a list of offences was created to permit
the Commissioner a consolidation of the powers.
Failure to comply with the provisions of the Act and wilful performance of any act, which
required the assent, or approval of the Commissioner without having first obtained such
approval became offences carrying a punishment of either a fine or imprisonment not
exceeding six months or both such fine and imprisonment.
The Act also conferred on the Commissioner the power to surcharge in order to ensure the
recovery of funds or property of a society misapplied or retained by any person participating
in the management and organization 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 formerly been exercised by the Governorin-Council under the 1945 Ordinance.
In addition to the matters outlined in the 1945 legislation, the Ministers rule-making power
was extended to cover provisions relating to the management of societys 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 societies liquidation
account.
Furthermore provision was made that any negotiable instrument and any order for goods or
services in excess of a specified amount by the registered society shall be ineffective unless
countersigned by the Commissioner or a person nominated by him for that purpose.
10
The Cooperatives Societies Act 1966 and the Cooperative Societies Rules 1969

There was also a requirement that any estimate of income and expenditure of a registered
society shall be submitted to the Commissioner for approval and that this 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 representative under the Act.
Pursuant to the power to make rules, the Minister made the Cooperative Societies Rules in
1969.
The rules made provisions with respect to the following matters:
1. Registration of cooperatives and maintenance of records related to management of

cooperatives
2. Content of bylaws and procedure for amendments
3. Membership of a society
4. Maintenance of books
5. Services to be rendered by district cooperative unions
6. Financial control through general meetings, special general meetings, 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 Government Sessional Papers released since 1970 repeatedly mentioned cooperatives as
players in the social development of the country. For example the Sessional Paper No. 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 2 million people and an annual turnover of Kshs. 6 billion.
The guidelines of future development stated in the Sessional Papers were on the engagement of
cooperatives in diverse activities in the export market, the informal sector, the development of
low-cost housing, among other activities.
Despite their importance, cooperatives were faced with their managerial incapacity and this
justified state involvement and control. So what was this state involvement and control?
As stated; state involvement and control of cooperatives commenced in 1931 when the first
Cooperative Ordinance was enacted in order to regularize their operations. Before this,
cooperatives were registered under Business Law.
The increased intervention occurred in 1945 when a new Act came into being and the first
Commissioner of Cooperatives was appointed in 1946.
Page
11
State Contribution to the Development of Cooperatives in Kenya
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 cooperative societies with a
turnover of Shs.100 million.
Immediately after independence it was state policy to involve people in the economic activities
of the economy.
Cooperatives were a handy institutional framework through which many indigenous Kenyans
could participate.
But cooperatives were hampered by the following problems:
1.
2.
3.
4.
Lack of integrity on the part of some union, society committee members and employees
Misappropriation and misapplication of funds
Excessive costs in handling of members produce
General inefficiency in the business operations of the movement
The main causes of these problems were:

1. Lack of basic understanding among the cooperatives about the purpose and functions of the
movement
2. Lack of training and managerial skills
3. Lack of knowledge and experience on the part of the employees

Arising out of these, and the governments 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 formalized and expounded in the first three development plans, mainly 1970,
1974, and 1978.
The aim was to ensure that public and cooperative sector grow rapidly to embrace a large
section of the economy. Cooperative policies were therefore instituted to:

In order to enable the movement to take off, the state strengthened and intensified its
supportive machinery for guiding and controlling it in order to curb malpractices.
Consequently, as noted, the 1945 Cooperative Ordinance was revised giving way to the
Cooperatives Societies Act, Chapter 490 of the Law of Kenya, in 1966.
With that Act, the state was able to be involved and therefore influence the day-to-day
activities of societies.
Page
12
1. Enable cooperatives to improve their performance

2. Enable cooperatives to enjoy marketing monopolies
3. Consolidate the cooperative movement in those areas where it was active.

Page
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 agreements with several donors who
included the World Bank, the United States, Germany and the Nordic countries that assisted in
technical expertise and finance as loans and grants to needy societies.
The extensive data systems enabled the role of cooperatives, particularly in Kenyas agricultural
sector, to be wide and varied.
Most of the production and marketing within small-scale holdings was organized through
cooperative societies.
Official statistics from the 1995 Economic Survey indicated that in 1994 the cooperative
movement in Kenya comprised of some 6,276 registered societies, of which 1,047 were
dormant and 122 were in the process of being liquidated.
The active societies were therefore 5,107 out of which 1,737 were agricultural cooperatives.
Out of these, the total membership was 1,261,928 which was 44% of the cooperative
movement involved in Agriculture.
Of the total cooperative turnover in 1994 of Shs.10 billion, the agricultural cooperatives had
75% thereof.
The Agricultural cooperatives therefore dominated the Cooperative movement in Kenya.
For certain crops, cooperatives accounted for substantial percentage of gross farm reserve.
For example, according to the 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.
The cooperative system was thus an important framework for production and marketing of
agricultural products in Kenya.
State support to the agricultural sector 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 consistently injected different types of assistance but the area of management
remained one of the main concerns.
Through the Nordic technical cooperative project, substantial assistance was available to
cooperatives for the development of management 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 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.
13

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 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.
Government has promoted cooperatives in various sectors of the economy with varying degrees
of success.
They will be found in activities such as handicrafts, 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 state promoted land-buying cooperatives through a special arm of the
Ministry of Cooperative Development, 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
under the Cooperative Settlement Office; the Office was reorganized and absorbed within the
other functions of the Ministry of Cooperative Development.
By recognizing cooperatives as an important economic system, and promoting it, through both
technical and financial support, these have 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 played a major role in the development of the Kenya cooperative
movement.
It was recognized that the movement had now reached a stage of development where it should
now shoulder its own responsibilities.
It also became clear that the first nurturing of the cooperative movement and 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 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 led to the enactment of the Cooperative Societies Act of 1997, which came into force on
1st 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.
We have seen that the rapid growth in cooperatives since independence was fuelled by heavy
government support through direct assistance and subsidized services.
These created problems related to dependence, which can be mainly summarized as follows:
Page
14
The Future Role of the State in Cooperative Development and Management as of 1997
Government involvement, therefore, had to be substantially reduced; it had to be re-orientated

in order to democratize 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 liberalization, 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 liberalize the cooperative movement in line with the national
liberalization policy.
This was for the first time in 1997/98. The liberalization had to involve the revision of the
Cooperatives Societies Act and with each revision the Ministry of Cooperative Development
had to be restructured to conform and be able to effectively address the newly emerging needs
of the liberalized movement.
Under the old Act the Ministry of Cooperative Development carried out the following functions:
1.
2.
3.
4.
5.
6.
Cooperative policy and implementation

Cooperative registration and extension services
Accounting and auditing of cooperative societies
Cooperative education and training
Cooperative credit and finance
Cooperative bank
These functions entailed involvement of the Ministry in the following duties and responsibilities:

Page
15
1. Direct intervention in the day-to-day management of cooperatives highly compromised the

universally accepted principles and values of cooperatives.
2. Within the agricultural sector, the 60% rule compelled the producers within the society area of
operation to sell their produce through the society. This created cooperative monopolies, which
were not faced by competition and therefore had no incentive for initiative, efficiency, and
effectiveness as they were assured of their income since they normally took the first charge on
crop proceedings.
3. Heavy state involvement hindered emergence of member control and member-managed
cooperatives as members came to rely on the state to safeguard their interests through curbing
of funds and other resources. This compromised cooperative values including self-help, selfresponsibility, 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.
1.
2.
3.
4.
5.
6.
7.
8.
9.
In order to professionalize and democratize the management of the cooperative movement and
enable them to be member-based and member-controlled, self-reliant organizations which will
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 to be performed by the Ministry of
Cooperative Development, were to be transferred gradually from the Ministry to the
cooperative movement. These are:
Education and training

Auditing, accounting and management systems
Cooperative bank
Approval of budgets
Capital expenditure and allowances
Hiring and dismissal of graded staff
Removal and election of management committees after inquiry, inspections and investigations
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.
2.
3.
4.
5.
6.
Registration and liquidation of societies

Enforcement of the Cooperative Societies Act
Formulation of cooperative policy
Advisory and creation of a conducive environment for cooperative growth and development
Registration of cooperative audit
Carrying out inquiries, investigation and inspections
16
Registration of societies
Enforcement of the Cooperative Societies Act
Policy formulation and implementation
Advisory management services
Audit supervision
Inspection, inquiries and investigations
Liquidation of societies
Education and training
Auditing, accounting and management systems
Cooperative Bank
Amalgamation and subdivision of societies
Approval of budgets, capital expenditure and allowances
Hiring and firing of graded staff
Removal and election of management committee after inquiries
Settlement of disputes and institutional charges
Page
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.

Hence the revision of the Act and its replacement by the 1997 Act.
That Act removed all those clauses that allow 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 governments normal laid-down procedures and
regulations.
However, it appears that by the year 2000, it was felt that liberalization had led to disarray
within the cooperative society.
Soon after its enactment, there was a proposal, a draft proposal to amend the Act by way of the
Cooperative Societies (Amendment) Bill 2001.
In late 2003 there was a proposal for a SACCO Regulatory (Amendment) Bill 2004.
These amendments to the 1997 Act namely: The Cooperative Societies (Amendment) Act of
2004 and also the promulgation of the Cooperative Societies Regulations of 2004 seem to
retrench state control and involvement in the cooperative movement.
The question is: is this an attempt to reinstate state control over cooperatives and to deliberalize the cooperative movement once more?
Benefits of Cooperative Organizations
1.
2.
3.
4.
5.
6.
7.
8.
Collection, transportation, processing and marketing agricultural produce.

Mobilization of savings and channelling the income of individual members for specific
developments projects.
Support to agricultural production through distribution of farm inputs.
Dissemination of applied technology to members
Provision of credit to member for defraying urgent expenses at affordable rates and costs.
Assisting in income distribution by participation through enabling large sections of the
population to engage in various income generating economic activities.
Creating employment directly through engagements for various cadres of staff and more
importantly self-employment as farmers and artisans.
A cooperative is an institutional framework through which the following are achieved:
(a)
Otherwise small and uneconomic surplus can be harnessed by tapping 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.
17
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 can be summarized as follows:
Page

(d)
(e)
(f)
(g)
(h)
Social control mechanisms become an acceptable substitute for physical assets as

collateral for loans
Development funds are channelled to individual members
Members can be educated on economic and social issues affecting them including
development of entrepreneurial skills
Wealth and capital can be created and owned jointly by large groups of lowincome earners.
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) Primary Societies

(ii) Secondary Societies
(iii) National Cooperative Organizations (NACOs)
(iv) Apex Societies

II.
Secondary Society
The Act defines a secondary society as a cooperative society whose membership is comprised of
primary societies.
18

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 interests by
pooling their resources 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 them 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 and cattle dips which can serve all of them.
Primary societies are the backbone of cooperatives in Kenya. Examples include: Harambee
Cooperative Savings and Credits Society Ltd, formed mainly by the employees of the Office of
the President; Afya Cooperative Savings and Credit Society Ltd, formed by employees of the
Ministry of Health.
Page
I.

III.

1.
2.
3.
4.
5.
6.
7.
8.
9.
IV.

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 NACOs
The NACOs offer specialized services to their affiliates.
The services include insurance and banking.
Currently there are 9 NACOs, namely,
Cooperative Bank of Kenya ltd
Kenya Union of Savings and Credit Cooperative Ltd (KUSCCO)
Kenya Rural SACCO Societies
National Housing Cooperative Union Ltd (NACHU)
Kenya Cooperative Creameries Ltd (KCC)
Kenya Planters Cooperative Union Ltd (KPCU)
Kenya Farmers Cooperative Association Ltd (KFA)
Cooperative Data and Information Centre (CODIC) Ltd
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.
Page
1. 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 marketing cooperatives are formed to assist members with collection, processing,
storage and sale of produce.
19
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

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
2. 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 members 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 investments include hotels, warehouses and other commercial properties.
3. 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.
4. Service Cooperatives
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.
5. 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.
Page
7. 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 societys by-laws.
20
6. 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.

TOPIC 2: FORMATION OF THE COOPERATIVE SOCIETY UNDER THE ACT
(IMPORTANT PROVISIONS UNDER THE COOPERATIVES SOCIETIES ACT
(AMENDED 2004)
1. OFFICERS:
Section 3 of the Cooperative Societies (Amendment) Act 2004 provides for officers of
cooperative societies:
i.
There shall be a Commissioner for Cooperative Development whose office shall be an
office in the Public Service;
ii.
There shall be such number of officers including Deputy Commissioner as may be
necessary to assist the Commissioner in the administration of the provisions in the Act;
iii.
The Commissioner shall be responsible for the growth and development of cooperative
societies by providing such services as may be required by Cooperative societies for
their organization, registration, operation, advancement and dissolution and for
administration of the provisions of the Act.
NB:It is important to not that the 1997 Co-operatives Societies Act provided for both the
position of a Commissioner, Deputy Commissioner, Registrar and Deputy Registrar both
appointed by the Minister, they had overlapping functions hence in the 2004 Amendment the
position of the registrar was done away with.
PART II OFFICERS
3.Commissioner, and other officers
1.
There shall be a Commissioner for Co-operative Development whose office shall be an office in the public
service.
2. There shall be such number of officers, including deputy Commissioners, as may be necessary to assist the
Commissioner in the administration of the provisions of this Act.
3. The Commissioner shall be responsible for the growth and development of co-operative societies by
providing such services as may be required by cooperative societies for their organisation, registration,
operation, advancement and, dissolution and for administration of the provisions of this Act.
Page
a) Registration
Section 4 of the Act provides that subject to the provisions of the Act, a society which has as its
objects the promotion of the welfare and economic interest of its members and which has
incorporated in its by-laws the co-operative principles may be registered as a co-operative
society under the Act with or without limited liability.
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.
And the co-operative principles:
i. Voluntary open membership
II. Democratic member control
III. Economic participation by members
IV. Autonomy independence
V. Education, training and information
VI. Co-operation among co-operations
21
2. REGISTRATION OF COOPERATIVE SOCIETIES

VII. Concern for community in development

Only primary societies may be registered without limited liability.

The co-operative union or apex society must be registered with limited liability.
PART III - REGISTRATION OF CO-OPERATIVE SOCIETIES
4.Registration of cooperative societies

Subject to the provisions of this Act, a society which has as its objects;a) the promotion of the welfare and economic interests of its members, and
b) has incorporated in its by-laws the following co-operative principles;
i.
voluntary and open membership;
ii.
democratic member control;
iii.
economic participation by members;
iv.
autonomy and independence;
v.
education, training and information
vi.
co-operation among co-operatives, and;
vii.
concern for the community in general.
May be registered by the Commissioner as a co-operative society under this Act with or without limited liability
Provided that a co-operative union or apex society shall not be registered except with limited liability.
b) Essentials For Registration of Co-operative Society

Section 5 of the Act provides that for a society to be registered, further:

a) 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.
b) If it is a cooperative union it must consist of 2 or more registered primary societies.
c) If it is an apex society it must consist of 2 or more secondary societies.
5.Essentials for registration of co-operative society

For a society to be registered under this Act, it must:a) in the case of a primary society, consists of at least ten persons all of whom shall be qualified for
membership of the co-operative society under section 14, or;
b) in the case of a cooperative union, has at least two registered societies as its members.
Section 6 of the Act provides that :An application to register a society is made to the
Commissioner in the prescribed form and signed:
Page
c) Procedure For Registration
22
14.Qualifications for membership

A Person other than a co-operative society shall not be qualified for membership of a co-operative society unless:a) he has attained the age of eighteen years,
b) his employment, occupation or profession falls within the category or description of those for which the
co-operative society is formed; and
c) he is resident within, or occupies land within, the society's area of operation as described in the relevant
by-law.
1)
In case of primary societies by at least 10 persons qualified for membership of the

society under sec 14.
2)
In the case of a secondary and apex society by a person duly authorized on that behalf
by each co-operative 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.
6.Procedure for registration

1. An application to register a society shall be made to the Commissioner in the prescribed form, and signed;
a) in the case of a primary society, by at least ten persons qualified for membership of the society
under section 14; or,
b) in the case of a secondary or apex society, by persons duly authorized in that behalf by each cooperative society or co-operative union, as the case may be, who are members thereof.
2. The application shall be accompanied by copies of the proposed by-laws in English and the person or
persons by whom or on whose behalf such application is made shall furnish such information within
regard to the society as the Commissioner may require.
3. If the Commissioner is satisfied that a society has complied with this Act and any rules made there under
and that its proposed by-laws are not contrary to this Act or any rules made there under, he may register
the society and its by-laws under this Act.
Page
Under section 7 of the Act, if the 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 of every description, 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.
23
d) Provisional Registration

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.
7.Provisional Registration
1.
2.
3.
If the Commissioner is not satisfied that a society has complied with this Act and any rules made thereunder, or is not satisfied that its by-laws conform with this Act and any rules made there-under, and is of
the opinion that steps can be and will be taken with diligence by the persons by whom or on whose behalf
the application or registration is made to comply with this Act and the rules made there-under or to make
the by-laws conform as aforesaid, the Commissioner may, in his discretion provisionally register the
society for such period not exceeding one year, and subject to its compliance with such terms and
conditions and provisions, as the Commissioner may specify in writing to the persons by whom or on
whose behalf the application for registration is made.
A provisional registration shall, subject to this section, and to any terms or conditions specified by the
Commissioner under subsection (1) entitle the society to operate as a co-operative society, and such
society whilst so entitled to operate shall be deemed to be a body corporate with perpetual succession
and a common seal, and with power to hold movable and immovable property of every description, to
enter into contracts, to institute and defend suits and other legal proceedings and to do all things
necessary for the purpose for which it is constituted; and, subject to the provisions of this Act, any
reference in any written law to a co-operative society shall, unless the context otherwise requires, include
a reference to a society which is provisionally registered.
A society which is provisionally registered shall cause the fact that it is provisionally registered to be
stated in legible Roman letters in all bill heads, letter papers, notices, advertisements and other official
publications of the society, and on a sign board in a conspicuous position outside any premises in which it
operates. The commissioner shall publish particulars of its registration in the Kenya Gazette.
4.
Page
The Commissioner may for good cause cancel the provisional registration of a society, by a notice
in writing addressed to the society, specifying the reasons thereof, and such cancellation shall
operate as a refusal to register the society, and the society shall, from the date of service of the
notice, cease to be a registered co-operative society.
b) At the expiration of the period specified by the Commissioner under subsection (1), a society, if it
has not been registered in the meantime, shall cease to be a registered co-operative society.
c) Where a society ceases to be a registered co-operative society:
24
a)

i.
The commissioner may appoint a competent person to be the liquidator of the society,
and
ii.
The validity of any transaction entered into by that society during the period of
provisional registration shall not be affected thereby.
5. At any time during the period of provisional registration of a society, the Commissioner, if he is satisfied
that the society has complied with this Act and any rules made there under, and that its by-laws conform
with the requirements of this Act and rules made there under, may register the society under section 5,
and thereupon such society shall be deemed to have been so registered on the date of its provisional
registration, and this section shall cease to apply to such society.
6. Where a society which has been provisionally registered under this section contravenes subsection (3),
the society and every officer, or person who purports to act as an officer, of the society shall be guilty of
an offence and shall be liable to a fine not exceeding ten thousand shillings, or in the case of a continuing
offence to a fine not exceeding one thousand shillings for each day during which the offence continues.
e) Amendments of By-Laws

Under section 8 of the Act, 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 Commissioner in the prescribed manner.
The company may register the amendment if satisfied that it is not contrary to the Act or the
Rules.
The 2004 legislation has added a proviso under section 6 to the effect that the commissioner
may, if hes satisfied that an amendment under this section was effected pursuant to a
misrepresentation or concealment of a material fact by the person applying for the registration,
cancel the amendment. (See Section 6 (3) of the Act)
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.

Page
(3A) The commissioner may, if he is satisfied that an amendment under this section was effected
pursuant to a misrepresentation or concealment of a material fact by the person applying for registration,
cancel the amendment.
25
8.Amendments of by-laws
1. A co-operative society may, subject to this Act, amend its by-laws, including the by-law which declares the
name of the society.
2. No amendment of the by-laws of a co-operative society shall be valid until the amendment has been
registered under this Act, for which purpose a copy of the amendment shall be forwarded to the
Commissioner in the prescribed manner.
3. If the Commissioner is satisfied that any amendment of the by-laws of the Co-operative society is not
contrary to this Act and any rules made there-under, he may register the amendment.

4.
An amendment which changes the name of a co-operative society shall not affect any right or obligation
of that society or any of its members, and any legal proceedings pending may be continued by or against
the society under its new name.
5. When the Commissioner registers an amendment of the by-law of a cooperative society, he shall issue to
the society a copy of the amendment certified by him, which shall be conclusive evidence of the fact that
the amendment has been duly registered.
6. In this section, "amendment" includes the making of a new by-law and the variation or revocation of a bylaw, but excludes the variation of the registered address of a co-operative society where this forms a part
of the by-laws of such society.

f) Appeals Against Refusal To Register

A society may under section 9 of the Act, appeal to the Minister against the Commissioners
refusal to register it and its bylaws or its amendment thereof.
The appeal must be taken within 30 days of the refusal.
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.
9.Appeal against refusal to register

1.
A co-operative society may appeal to the Minister against the commissioner's refusal to register the
society and its by-laws or any amendments of its by-laws under Section 8, within thirty days after being
notified of the refusal.
2. Any party aggrieved by the decision of the Minister under sub-section (1) may appeal against the decision
to the High Court within thirty days.
g) Registration Under Identical Name

Section 10 provides for the protection of the name co-operative. It states that no society
shall be registered under a name identical with that of any other registered society or under any
name likely, in the opinion of the committee to mislead the 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.
Page
26
10.Registration under identical name

1. No society shall be registered under a name identical with that under which any other existing society is
registered, or under any name likely, in the opinion of the Commissioner, to mislead the members of the
public as to its identity.
2. The word "co-operative" shall form part of the name of every co-operative society, and the word
"Limited" shall be the last word in the name of every cooperative society having limited liability.

h) Registration Certificate as Conclusive Evidence of Registration

Under Section 11 of the Act provides that 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.
11.Evidence of registration
1. A certificate of registration or of a provisional registration signed by the Commissioner shall be conclusive
evidence that the society therein mentioned is duly registered or provisionally registered, unless it is
proved that such registration of the society has been cancelled or has been terminated.
2. The Certificate of registration bearing the number and date of registration shall be displayed at the head
office of every co-operative society.
3. A copy of the by-laws of a co-operative society or of an amendment of such by-laws certified by the
Commissioner shall be prima facie evidence for all purposes of the registration of such by-laws or such
amendment.
4. A document purporting to be signed by the Commissioner shall be presumed to have been signed by him
until the contrary is proved.
3. PRIVILEGES OF REGISTERED SOCIETIES:

a) Body Corporate and By-Lawa
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.
Under Section 13 of the Act 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. (The by laws binds all members).
PART IV - PRIVILEGES OF REGISTERED SOCIETIES
Page
13.By-laws to bind members of co-operative society

The by-laws of a co-operative society, shall, when registered, bind the cooperative society and the members
thereof to the same extent as if they were signed by each member and contained covenants on the part of each
27
12.Co-operative Society to be body corporate

Upon registration, every society shall become a body corporate by the name under which it is registered, with
perpetual succession and a common seal, and with power to hold movable and immovable property of every
description, to enter into contracts, to sue and be sued and to do all things necessary for the purpose of, or in
accordance with, its by-laws.

member for himself and his personal representatives to observe all the provisions of the bylaws.
4. RIGHTS & LIABILITIES OF MEMBERS
a)
b)
c)
a) In Relation to Qualification for Membership:

Section 14 provides that a person other than a cooperative society shall not be qualified for
society membership unless the following requirements are met.
He has attained the age of 18 years;
His employment occupation or profession falls within the category or description of those
for which the society was formed;
He is resident within or occupies land within the societys area of operation as described in
the relevant by-law;
PART V - RIGHTS AND LIABILITIES OF MEMBERS

14.Qualifications for membership
A Person other than a co-operative society shall not be qualified for membership of a co-operative society unless:a) he has attained the age of eighteen years,
b) his employment, occupation or profession falls within the category or description of those for which the
co-operative society is formed; and
c) 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 paidup share capital of any society.
15.Limitation of holding share capital

No member, other than a co-operative society, shall hold more than one-fifth of the issued and paid-up share
capital of any co-operative society.
b) Membership is Subject to Authorization by Annual General Meeting.

Section 16 provides: 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 authorization through a resolution by an annual general meeting of that
society.
Page
28
16.Membership subject to authorization by a general meeting

No company incorporated or registered under the Companies Act, or no unincorporated body of persons shall be
entitled to become a member of a cooperative society, except with a written authorization through a resolution by
a general meeting of that co-operative society.

c) Membership of a Co-operative Society.

Section 17 stipulates that 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.
17.Membership of cooperative society

No member of a co-operative society shall exercise any of the rights of a member unless he has made such
payment to the society in respect of membership, or has acquired such interest in the society as may be prescribed
under this Act or under the by-laws of the society.
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 or similar object. 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.
18.Limitation of membership to one society

No person shall be a member of more than one co-operative society with unlimited liability and, no person shall be
a member of more than one cooperative society having the same or similar object; Provided that a person who:i.
is a member of a co-operative society; and
ii.
carries on business on land or at premises outside the area of operation of that co-operative society;
may be a member of a co-operative society in whose area of operation that land or those premises are situate,
notwithstanding that its objects are the same as or similar to those of the first-mentioned society.
d) Voting Rights
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 not
exceeding the number of such votes to exercise its voting power.
Page
Each member of a co-operative society shall have one vote only in the affairs of the society, irrespective of the
number of shares he holds:
Provided that a co-operative society which is a member of any registered society shall have as many votes as may
be prescribed by the by-laws of the cooperative society of which it is a member, and may, subject to such by-laws,
appoint any number of its committee members, not exceeding the number of such votes, to exercise its voting
power.
29
19.Voting rights of members

e) Shares and Transfer of Shares

Section 20 provides for shares or Transfer of shares 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.
20.Transfer of shares
1. The transfer or charge of the share or interest of a member in the capital of a co-operative society shall be
subject to such conditions as to maximum holding as are laid down in Section 15.
2. In the case of a co-operative society registered with unlimited liability, a member shall not transfer or
charge any share held by him or his interest in the capital of the society or any part thereof, unless:a) he has held such share or interest for at least one year, and
b) the transfer or charge is in favour of the society or a member of the society.
15.Limitation of holding share capital
No member, other than a co-operative society, shall hold more than one-fifth of the issued and paid-up share
capital of any co-operative society.
f) Rights and Obligations Of Members

Under Section 21 A member of a society has the following rights :
Page
21.Rights of members
A member of a co-operative society shall have the right to:
a) attend and participate in decisions taken at all general meetings of the society and vote;
b) be elected to organs of the society, subject to it's by-laws;
c) enjoy the use of all facilities and services of the society subject to the society's by- laws;
d) all legitimate information relating to the society, including: internal regulations, registers, Minutes of
general meetings, supervisory committee reports, annual accounts, inventories, and investigation reports,
at the society's head office.
30
a. To attend and participate in the decisions taken at all annual general and special meetings of the
society and to vote;
b. He has a right to be elected to the organs of the society subject to its bylaws;
c. Right to enjoy the use of all the facilities and services of the society subject to its bylaws;
d. 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 societys head office.

(a)
(b)
(c)
On the other hand a member has the following obligations provided under Section 22
To observe and comply with all the societys by laws and decisions taken by the relevant
organs of the society in accordance with its bylaws;
He has the obligation to buy and pay up for shares or make any other payments provided
for in its bylaws;
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.
22. Members rights vis-a vis the co-operative society.

A member of a co-operative society shall have the obligation to:
a) Observe and comply with all the society by-laws and decisions taken by the relevant organs of the cooperative society in accordance with the by-laws of the society.
b) Buy and pay up for shares or make any other payments provided for in the by-laws of the society.
c) Meet the debts of the society in case of bankruptcy in accordance with the provisions of this Act and the
by-laws of the society.
5. DUTIES OF COOPERATIVE SOCIETIES

a)
Registered Address of Society.
Section 23 provides that every society is required to have a registered address to which notices
and communication may be sent and is required to send to the commissioner notice of every
change of address within one month thereof.
PART VI - DUTIES OF CO-OPERATIVE SOCIETIES
23.Registered address of cooperative society
Every co-operative society shall have a registered address to which notices and communications may be sent and
shall send to the Commissioner notice of every change of address within one month of the change.
b)
The Society to Keep Copies of the Act and By-laws.
Section 24 provides that 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.
24.Society to keep a copy of the Act and by-laws at registered office
Every co-operative society shall keep a copy of this Act and of the rules made there-under and of its own by-laws
and a list of its members (excluding details of nominees and shareholdings) at its registered office and shall keep
them open for inspection by any person, free of charge, at all reasonable times during business hours.
Page
24A.Estimates of income and expenditure

For each financial year, the committee of a co-operative society shall cause to be prepared estimates of the
societys income and expenditure including recurrent and capital estimates for approval by the general meeting at
31
c)
Estimates of Income and Expenditure.
This is a new provision added by the 2004 Amendment Act. It provides in section 24A that for
each financial year, the committee of a society shall cause to be prepared estimates of its
income and expenditure including recurrent and capital estimates for approval by General
Meeting at least three months before the end of the preceding financial year.

least three months before the end of the preceding financial year.
d)
A replacement of section 25 of the 1997 Act by the 2004 Amendment.
It relates to account and audit. Its provided that every society is required to keep proper books
of accounts prepared in accordance with internationally accepted accounting standards and
which reflect 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 on goods and services 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.
1. 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,
from a list of auditors approved by the committee in consultation with the Institute of Public
Accountants in Kenya. 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:
I. Conform with international financial reporting standards and

II. Include the following matters:
(a) A balance Sheet;
(b) An income and expenditure 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.
III. Be approved by the committee
IV. Be authenticated by at least three committee members including the societys chairman
2. No auditor shall present the audited accounts to the members of the general meeting unless
they have previously been submitted to the commissioner in such form as may be prescribed.
Every auditor shall submit the audited accounts and balance sheet to the members in an annual
general meeting convened within 4 months after the end of the accounting period and shall
include his opinion as to whether or not the societys business has been conducted
Page
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)
In accordance with the societys objectives, bylaws and any other decisions made by
the society in a general meeting.
3. The auditor has
32
(i)

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.
(b)
The auditor has a right to attend any general meeting of the society
(c)
The auditor has the right to receive all notices and other communication relating to
any general meeting which a member of the society is entitled to receive
(d)
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:
i.
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;
ii.
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
iii.
Obtain such other information or explanation from any officer of the society as may be
necessary for the performance of his duties as an auditor.
4. 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 commissioner 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.
5. Under Section 25(11): Where a society fails to cause its accounts to be audited within the
prescribed period in respect of its business for the previous financial year, members of the
committee shall automatically lose their positions at the next general meeting and shall not be
eligible for re-election for three years unless the commissioner is satisfied that the failure was
due to circumstances beyond their control
6. For the purposes of Section 25(12), International Accounting Standards and International
Financial Reporting Standards means standards established by the Institute of Certified Public
Accounting of Kenya.
Page
25 .Accounts and audit

1. Every co-operative society shall keep proper books of accounts which shall: a) be prepared in accordance with International Accounting Standards;
b) reflect the true and fair state of the co-operative societys affairs; and
c) explain the co-operative societys transactions including:i.
all sums of money received and paid by the co-operative society and the reasons
thereto;
ii.
all sales and purchases of goods and services by the cooperative society; and
iii.
all assets and liabilities of the co-operative society;
2. The books of account shall be kept at the registered office of the co-operative society and also at such
other place as may be determined by the co-operative society and shall at all times be available for
inspection by members of its supervisory committee and the auditor.
3. It shall be the duty of every co-operative society to cause its accounts to be audited at least once in every
financial year by an auditor appointed under subsection (4).
4. The auditor shall be appointed at the annual general meeting from a list of auditors approved by the
Commissioner, in consultation with the Institute of Certified Public Accountants of Kenya.
5. Where at an annual general meeting no auditor is appointed, the Commissioner may appoint a person to
fill the vacancy and the remuneration of the person so appointed shall be borne by the co-operative
33
(a)

society.
The accounts referred to in subsection (3) shall: a) conform with International Financial Reporting Standards;
b) include the following records
i.
a balance sheet;
ii.
an income and expenditure account; and
iii.
cash flow statement,
c) be approved by the committee; and
d) be authenticated by at least three committee members including the Chairman of the cooperative society.
7. No auditor shall present the audited accounts of a co-operative society to the members at a general
meeting unless the accounts have previously been submitted to the Commissioner in such form as may be
prescribed.
8. The auditor shall submit the audited accounts to a general meeting within four months after the end of
the accounting period and shall include his opinion as to whether or not the co-operative societys
business has been conducted
a) in accordance with the provisions of this Act and, whether the books of accounts kept by the cooperative society are in agreement therewith and give a true and fair view of the state of the
affairs of the society; and
b) in accordance with the Co-operative Societies' objectives, by-laws and any other resolutions
made by the society in a general meeting.
9. The auditor shall have the right to:a) attend any general meeting of the co-operative society and be heard on any matter which
concerns him as an auditor;
b) receive all notices and other communications relating to any general meeting which a member of
the co-operative society is entitled to receive;
c) access at all times, any accounting records, books or documents of the co-operative society as
may be necessary for the purpose of carrying out his duties as an auditor and may at the time of
his audit
i.
summon any officer, agent or any member of the cooperative society for the purpose of
obtaining information on the transactions of the society or management of its affairs;
ii.
require the production of any book, document, cash or securities relating or belonging
to the co-operative society by any officer, agent, trustee or member having custody of
such book, document, cash or securities;
iii.
demand such other information or explanation from any officer of the co-operative
society as may be necessary for the performance of his duties as an auditor.
10. Every co-operative society shall, at such time and in such form as may be prescribed, file with the
commissioner an annual return together with a certified true copy of the audited accounts and balance
sheet of the society for each period of twelve months.
11. Where a co-operative society fails to cause its accounts to be audited within the prescribed period in
respect of its business for the previous financial year; members of the committee shall automatically lose
their positions at the next general meeting and shall not be eligible for re-election for three years unless
the Commissioner is satisfied that the failure was due to circumstances beyond their control.
12. For purposes of this section, International Accounting Standards and International Financial Reporting
Standards means the standards established by the Institute Certified Public Accountants of Kenya.
Page
e)
Production of Books and Other documents.
Under Section 26 it is provided that any officer, agent, servant or member of the society who is
required by the commissioner or by a person authorised in writing by him so to do shall at such
34
6.

place and time as the commissioner 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.
26.Production of books and other documents
Any officer, agent, servant, trustee or member of a co-operative society who is required by the Commissioner, or
by a person authorized in writing by him so to do shall, at such place and time as the Commissioner may direct,
produce all moneys, securities, books, accounts and documents belonging to or relating to the affairs of such
society which are in the custody of such officer, agent, servant or member.
6. MANAGEMENT OF COOPERATIVE SOCIETIES

a)

The 1997 Act was amended by the 2004 Act which replaced Section 27 and provided as follows:
General Meetings
The supreme authority of a society is vested in the general meeting at which members have a
right to attend, participate and vote in all matters.
The society is required to hold an AGM within four months after the end of each financial year.
In the first year after registration the society is required to hold a general meeting not later than
one month after the receipt of the registration certificate and during that meeting, the member
shall do the following:
(a)
(b)
(c)
(d)
(e)
a.
b.
c.
d.
e.
f.
g.
h.
Consider and confirm the minutes of the previous meeting

Consider any reports of the committee or commissioner
Consider and adopt audited accounts
Determine the manner in which any available surplus is to be distributed or invested
Elect the office bearers for the coming year
Determine where necessary the societys maximum borrowing powers
Appoint an auditor for the coming year
Transact any other general business of which notice has been circulated to members in
conformity.
A special general meeting of the society may be convened in two circumstances:

By the committee for the purpose of approving annual estimates or discussing any
urgent matter which in the committees opinion is in the interest of the society.
Page
i.
35
Elect its office bearers for the coming year

Determine its maximum borrowing power
Consider and approve estimates of income and expenditure for the coming year
Appoint its bankers and creditors
Receive reports and decide upon such matters as may be necessary for the conduct of
its business
A general meeting is convened by giving at least a notice of 15 days to its members. At this
meeting, the members shall do the following:
27.General Meetings
1. The supreme authority of a co-operative society shall be vested in the general meeting at which members
shall have the right to attend, participate and vote on all matters.
2. Subject to subsection (3) a cooperative society shall hold an annual general meeting within four months
after the end of each financial year.
3. In the first year after registration of a society, the general meeting shall be held not latter than one month
after receipt of the certificate of registration of the co-operative society and during such meeting, the
members shall
a)
elect the co-operative societys office bearers for the ensuing year;
b)
determine the maximum borrowing powers of the co-operative society;
c)
consider and approve estimates of income and expenditure for the ensuing financial year or
part thereof;
d)
appoint the co-operative societys bankers and auditors; and
e)
receive reports and decide upon such other matters as may be necessary for the conduct of
the co-operative societys business.
4. A general meeting of a co-operative society shall be convened by giving at least fifteen days written notice
to the members.
5. At the annual general meeting of a co-operative society, the members shall
a)
consider and confirm the minutes of the last general meeting;
b)
consider any reports of the committee, or Commissioner;
c)
consider and adopt audited accounts;
d)
determine the manner in which any available surplus is to be distributed or invested;(e) elect
the co-operative societys office bearers for the ensuing year;
e)
determine, where necessary the maximum borrowing power of the society;
f)
appoint an auditor for the ensuing year; and
g)
transact any other general business of the society of which notice has been given to
members in the manner prescribed in the by-laws of the society;
6. A special general meeting of a co-operative society shall be convened:a)
by the committee for the purpose of approving annual estimates or discussing any urgent
matter which in the committees opinion is in the interest of the co-operative society; or
b)
on receipt of a written notice for such meeting signed by such number of members of the
co-operative society as may be prescribed in the rules and stating the objects and reasons
for calling the meeting.
7. If the committee fails to convene a meeting within fifteen days of receiving notice under subsection (6)
(b), the members demanding the meeting may themselves convene the meeting by notice to the other
members of the society, stating the objects and reasons for the meeting and the fact that the committee
has failed to convene the meeting.
36
Page
ii. On receipt of a written notice for such meeting signed by such number of members as
may be prescribed in the rules and stating the objects and reasons for calling the
meeting.
If the committee fails to convene a meeting within 15 days of receipt of the notice, then the
members demanding the meeting may convene it by giving notice to the other members stating
the objects and reasons for it and the fact that the committee has failed to convene the
meeting. The commissioner has power to convene a special meeting of the society at which he
may direct the matters to be discussed at the meeting.
The chairman or in his absence, the vice chairman or such other person as may be presented in
the by-laws presides at a general meeting of the society. Also the commissioner may preside at
any meeting which he himself has convened.

8.
The Commissioner may, at any time convene a special general meeting of a society at which he may direct
the matters to be discussed at the meeting.
9. The Chairman or in his absence the vice Chairman or such other person as may be prescribed in the bylaws of the co-operative society shall preside at a general meeting of a co-operative society.
10. The Commissioner may preside at any meeting convened under subsection (8).
b)
Membership and Powers of the Committee

The 1997 Act was amended by repealing section 28 thereof replacing it with the following
provisions: Every society shall have a committee consisting of not less than five and not more
than nine members.
The committee members shall elect a chairman and the vice chairman from amongst
themselves. The committee is the governing body of the society and shall subject to any
direction from a general meeting or society by-laws, direct the affairs of the society with the
following powers:
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.
Is not a member of the society

Is under 18 years
Is unable to read and write
Receives any remuneration, salary or other payment from the society except in
accordance with the Act
Is a committee member in to other societies
Being a member of a co-operative society that lends money to its members, lends
money on his own account
Being a member of a society which trades in goods or produce, trades either on his own
account or some other persons account in the same type of goods or produce
Hasnt within 30 days of being appointed declared his wealth to the commissioner in the
prescribed manner
Is an undischarged bankrupt
Is of unsound mind
Has been adversely named by the commissioner in an enquiry report adopted by a
general meeting for mismanagement or corrupt practices while a member of the
committee
Has been convicted of any offence under the Act or rules
Has been convicted of any offence involving dishonesty or is sentenced to imprisonment
for a term exceeding three months
Has any uncleared debt owing to a society at the end of its financial year other than in
respect of a loan under the provisions of any rules made under the Act.
Is a person against whom any amount of money is due under a decree, decision or order
or is pending recovery under it.
Page
to enter into contracts

to institute an event, suit and other legal proceedings brought in the
name of or against the society
iii)
do all other things necessary to achieve society objectives in accordance
with its by-laws
As far as membership of that committee is concerned, no person shall be a member if he:
37
i)
ii)
The committee may delegate any of its duties to an officer(s) of the society but that delegation
shall not absolve the committee from its responsibility to run the affairs of the society, the
committee shall exercise the prudence and diligence of old men of business and the members
shall be held jointly and severally liable for any losses sustained through any of their acts which
are contrary to the Act, Rules, By-laws or the decisions of any general meeting of the society.
The commissioner may suspend from duty any committee members charged in a court of law
with an offence involving fraud or dishonesty pending the determination of the matter.
2.
3.
4.
5.
6.
Every co-operative society shall have a committee consisting of not less than five and not more than nine
members.
The members of the committee shall elect a chairman and a vice chairman from among their number.
The committee shall be the governing body of the society and shall, subject to any direction from a
general meeting or the by-laws of the co-operative society, direct the affairs of the society with powers to
a)
enter into contracts;
b)
institute and defend suits and other legal proceedings brought in the name of or against the
society; and
c)
do all other things necessary to achieve the society's objects in accordance with its by-laws.
No person shall be a member of a committee if he
a)
is not a member of the co-operative society;
b)
is under eighteen years of age;
c)
is unable to read and write;
d)
receives any remuneration, salary or other payment from the cooperative society save in
accordance with this Act;
e)
is a committee member in two other co-operative societies;
f)
being a member of a co-operative society that lends money to members, lends money on his
own account;
g)
being a member of a co-operative society which trades in goods or produce, trades either on
his own account or some other persons account in the same type of goods or produce;
h)
has not, within thirty days of being appointed, declared his wealth to the Commissioner in
the prescribed manner;
i)
is un-discharged bankrupt;
j)
is of unsound mind;
k)
has been adversely named by the Commissioner in an inquiry report adopted by a general
meeting for mismanagement or corrupt practices while a member of the committee;
l)
has been convicted of any offence involving dishonesty or is sentenced to imprisonment for
a term exceeding three months;
m)
has been convicted of any offence under this Act or rules made there under;
n)
has any un-cleared debt owing to a co-operative society at the end of its financial year other
than in respect of a loan under the provision of any rules made under this Act; and
o)
is a person against whom any amount of money is due under a decree, decision or order or
is pending recovery under this Act.
The Committee may delegate any of its duties under this Act to an officer or officers of the society but,
nothing in this subsection shall absolve the Committee from its responsibility to run the affairs of the cooperative society in proper and businesslike manner.
In the conduct of affairs of a co-operative society the members of the Committee shall exercise the
prudence and diligence of ordinary men of business and shall be held, jointly and severally liable for any
Page
1.
38
PART VII - MANAGEMENT OF CO-OPERATIVE SOCIETIES

28.Membership and powers of the committee

losses sustained through any of their acts which are contrary to the Act, rules, by-laws or the directions of
any general meeting of the co-operative society.
7. The Commissioner may suspend from duty any committee member charged in a court of law with an
offence involving fraud or dishonesty pending the determination of the matter.
7. AMALGAMATION & DIVISION OF SOCIETIES

a. IN RELATION TO AMALGAMATION:
i.
ii.
iii.
The repayment of the share capital of any member who has given notice;
The satisfaction of any claims by creditors who have given notice;
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
commissioner.
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
commissioner considers reasonable he is satisfied that the secondary resolution of each of the
39
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
Page

amalgamating societies complies with the provisions of the Act, he may register the
amalgamated society and its bylaws and thereupon the following will result:
Each of the amalgamating societies shall stand dissolved and its registration cancelled;
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 subject 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 commissioner refuses the amalgamation those societies may appeal against such refusal
to the Minister.
Page
PART VIII - AMALGAMATION AND DIVISION OF CO-OPERATIVE SOCIETIES

29.Amalgamation of cooperative societies
1. Any two or more co-operative societies (hereinafter referred to as amalgamating societies) may, by a
special resolution (in this section referred to as the preliminary resolution), resolve to amalgamate as a
single society (thereinafter referred to as the amalgamated society).
2. A copy of the preliminary resolution shall be sent to all the members and creditors of each of the
amalgamating societies, and to all other persons whose interests in any of the amalgamating societies will
be affected by the amalgamation.
3. Any member of any of the amalgamating societies may, notwithstanding any by-law to the contrary, by
notice in writing given to his society at least one month before the date specified as the date of
amalgamation, intimate his intention not to become a member of the amalgamated society.
4. 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 specified as the date of
amalgamation, intimate his intention to demand the payment of any money due to him.
5. Any other person whose interest will be affected by the amalgamation may, by notice in writing given to
the concerned amalgamating society, not less than one month before the date specified as the date of
amalgamation, object to the amalgamation unless his claim is satisfied.
6. Not less than three months after the date of the meeting at which the preliminary resolution is passed, a
further special general meeting of each of the amalgamating societies shall be held to consider the
preliminary resolution and any notices received under this section.
7. At the special general meeting held under subsection (6) provision shall be made by a further resolution
of the society (in this section referred to as the secondary resolution) for;a)
the repayment of the share capital of any member who has given notice under subsection
(3).
b)
the satisfaction of any claims by creditors who have given notice under subsection (4); and
c)
the satisfaction of the claims of such other persons who have given notice under subsection
(5) securing of their claims in such a manner as determined or directed by the
Commissioner.
Provided that no member or creditor or other person shall be entitled to such repayment or satisfaction until the
preliminary resolution is confirmed as provided in subsection (8).
8. Each amalgamating society may, by further resolution passed by two-thirds majority of the members
present and voting, confirm the preliminary resolution.
9. If, within such time as the Commissioner considers reasonable, the Commissioner is satisfied that the
secondary resolutions of each of the societies amalgamating comply with the provision of this section, he
may register the amalgamated society and its by-laws and thereupon:a)
each of the amalgamating societies shall stand dissolved and its registration cancelled;
b)
the registration of the amalgamated society shall be a sufficient conveyance to vest the
40
1.
2.

assets and liabilities of the amalgamating societies in the amalgamated society;
the remaining members of the amalgamating societies shall become members of the
amalgamated society and will be subjected to its by-laws;
d)
any share holders of the amalgamating societies or any other whose claims were not
satisfied in accordance with the secondary resolution, may pursue such claims against the
amalgamated society.
10. Where the Commissioner refuses to approve the amalgamation of the amalgamating societies under
subsection (9) such societies may appeal against such refusal to the Minister.
c)
b. DIVISION OF SOCIETIES:

1.
2.
3.
In section 30, 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.
Member:
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.
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. (3rd 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
Page
i. The repayment of the share capital of any member who has given notice
ii. The satisfaction of any claims by creditors who have given notice
iii. The satisfaction of the claims of other persons who have given notice for the securing of
their claims as the commissioner may determine or direct.
41

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

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;
The remaining members of the existing societies become members of one or other of the
new societies as provided by the preliminary resolution;
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 of the new societies as provided by
the confirmed preliminary resolutions.
Section 30 (10) 1997 Act was repealed and replaced by the following under the 2004 Act:
Where the commissioner refuses to approve the division of an existing society, the society may
appeal to the Minister within 30 days of the communication of refusal.
These are the provisions under which the societies want to amalgamate themselves.
30.Division of co-operative societies

1.
a) A co-operative society (hereinafter referred to as the existing, society) may, by special resolution
(in this section referred to as the preliminary resolution), resolve to divide itself into two or more
co-operative societies (hereinafter referred to as the new societies).
b) The preliminary resolution shall contain proposals for the division of assets and liabilities of the
existing society among the new societies in which it is proposed to be divided and may prescribe
the area of operation of, and specify the members who will constitute each of the new societies.
2. A copy of the preliminary resolution shall be sent to all the members and creditors of the existing society,
and to all other persons whose interests will be affected by the division of the existing society.
3. Any member of the existing society may, notwithstanding any by-law to the contrary, by notice in writing
given to the society within two months of the receipt of the copy of the preliminary resolution, intimate
his intention not to become a member of any of the new societies.
4. Any creditor of the existing society may, notwithstanding any agreement to the contrary, by notice in
writing given to the existing society within two months after his receipt of the copy of the preliminary
resolution, intimate his intention to demand the payment of any money due to him.
5. 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 the receipt of the preliminary resolution, object to the division.
6. After the expiry of three 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 under this section.
7. At the special General Meeting held under subsection (6), provision shall be made by a further resolution
42
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 commissioner are not substantial and the decision or the commissioner relating to these
changes is final.
If the commissioner 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;
Page
Page
8. RIGHTS & OBLIGATIONS OF SOCIETIES

a. Society to Have First Charge Over Members Produce
It is provided for under Part 9 of the Act.
Section 31 provides that 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 therein 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 payable to it in all
respects as if it were the owner of that produce.
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)
43
of the society for: a) the repayment of the share capital of any member who has given notice under sub-section (3);
b) the satisfaction of any claims by creditors who have given notice under sub-section (4);
c) the satisfaction of the claims of such other persons who have given notice under sub-section (5)
or the securing of their claims as the Commissioner may determine, or direct; Provided that no
member or creditor or other person shall be entitled to such repayment or satisfaction until the
preliminary resolution is confirmed as provided in subsection (8).
8. The society may, by further resolution passed by a three-fourths majority of the members present and
voting, confirm the preliminary resolution,
9. If, the Commissioner is satisfied within such time as he considers reasonable that the provisions of the
secondary resolution and the provisions of this section have been complied with, he may, register the
societies into which the existing society has been divided and the by-laws of such societies and
thereupon;
a) The registration of the existing society 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 in the manner specified in the preliminary resolution, as
confirmed.
c) The remaining members of the existing society shall become members of one or other of the
new societies, as is provided by the preliminary resolution, as confirmed, and
d) Any members or creditors of the existing society and any other persons who have claims against
the existing society and whose claims were not satisfied in accordance with the secondary
resolution, may pursue such claims against one or other of the new societies, as is provided by
the preliminary resolution, as confirmed.
10. Where the Commissioner refuses to approve the division of an existing society under sub-section (9) the
society may appeal to the Minister within thirty days of the communication to it of the refusal.

PART IX - RIGHTS AND OBLIGATIONS OF CO-OPERATIVE SOCIETIES
31.Society to have charge over members' produce
1. A co-operative society which has as one of its objects the disposal of any 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 produce, or such amounts or descriptions of the same as may be stated therein, to or
through the society, and the contract may bind the members to produce the quantities of produce
therein specified, and the contract may also provide for payment of a specified 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 immovable property of the
member (subject to registration of the charge under the law under which the property is registered) and
all stock then being thereon.
2. Any such contract as is mentioned in subsection (1) shall have the effect of creating in favour of the cooperative society a charge upon the proceeds of sale of all produce mentioned therein, whether existing
or future.
3. A co-operative society may, on the authority of a resolution passed in general meeting, pledge the
produce deliverable by members under any such contract as is mentioned in subsection (1) as security for
loans made to the society, in all respects as if it were the owner of the produce.
4. No contract entered into under this section shall be contested in any court on the ground that it
constitutes a contract in restraint of trade.

32.Fines for violation of bylaws

1. The by-laws of a co-operative society may, subject to this Act and Rules made there-under, provide for
the imposition of fines, not exceeding twenty thousand shillings, on its members for any infringement of
its by-laws, but no such fine shall be imposed upon any member until written notice of the intention to
impose the fine and the reason thereof has been served on him and he has had an opportunity showing
cause why the fine should not be imposed and, if he so desires, of being heard with or without witnesses.
2. Any such fine shall be a civil debt due to the co-operative society, and shall, without prejudice to any
other means of recovery, be recoverable summarily.
3. The whole or any part of such fine may be set off against any moneys due to such member in respect of
produce delivered by him to the co-operative society.
4. A member shall not be taken to have infringed the by-laws of a co-operative society by reason of his
having failed to deliver produce to such society, if the failure was due to the fact that, before becoming a
44
Page
b. Fines For Violation Of Bylaws

Section 32 of the Act provides; Society by laws may subject to the Act and rules provide for the
imposition of fines not exceeding Kshs 20,000 on its members for any infringement of its
bylaws but such a fine shall not be imposed upon any member until written notice of intention
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.

member of the society, he had contracted to deliver such produce to some other person, and the contract
had been disclosed in accordance with sub-section (5).
5. It shall be the duty of every person applying for membership of a registered society to disclose to the
society particulars of all such contracts as are mentioned in sub-section (4).
c. Society To Have Charge Over Debts And Other Assets In Certain Cases:
Section 33 provides that: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 machinery or materials for manufacture or buildings
or;
(b) Rendered any services to any member or past member or;
(c) Lent 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 or there from or with the aid of such money and that charge shall
subsist for such period as the loan or value of services rendered shall remain unpaid.
33.Society to have first charge over debts, assets etc. in certain cases
1. Subject to any other written law as to priority of debts where a co-operative society has:
a) supplied to any member or past member any seeds or manure, or any animals feeding stuff,
agricultural or industrial implements or machinery or materials for manufacture or building; or
b) rendered any services to any member or past member; or
c) lent money to any member or past member to enable him to buy any such things as aforesaid or
to obtain any such services, the society shall have a first charge upon such things or, as the case
may be, upon any produce, or articles produced therewith or there from or with the aid of such
money.
2. The charge shall subsist for such period as the loan or value of the services rendered by a co-operative
society to a member shall remain unpaid.
d. Society To Have First Charge Over Members Share:

Under section 34 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.
Page
e. Remittance Of Deductions From Employees Emoluments To The Society And Interest

Payable On Default:
45
34.Society to have first charge over members' share

A co-operative 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 a member or past
member, in respect of any debt due from such member or past member to the society, and may set off any sum
credited or payable to such member or past member in or towards the payment of any such debt.

35.Failure to remit the sum deducted

1. Where an employer of a person who is a member of a co-operative society, has under instructions of the
employee, made a deduction from such employee's emoluments for remittance to the co-operative
society concerned but fails to remit the deductions within seven days after the date upon which the
deduction was made, the employer shall be liable to pay the sum deducted together with compound
interest thereon at the rate of not less than five percent per month.
2. The commissioner may, on behalf of the society, institute legal proceedings in court for the recovery of
the sum owing under subsection (1) without prejudice to any other mode of recovery and such sum shall
be a civil debt recoverable summarily.
3. The Commissioner may, by a written notice, appoint any person, bank or institution to be an agent of the
society for the purpose of collection and recovery of a debt owed to the society.
4. The agent shall pay the amount specified in the notice issued under subsection (3) out of any moneys
46
Section 35 was repealed and replaced by Co-op Society Amendment Act of 2004 which
provides that where the employer of a person who is a member of a society has under the
instructions of the employees emoluments for remittance to the society concerned but fails to
remit the deductions within 7 days after the date upon which the deduction was made, the
employer shall be liable to pay the sum deducted together with compound interest at the rate
of not less than 5% per month.
The commissioner may on behalf of the society institute legal proceedings in court for recovery
of that money without prejudice to any other mode of recovery and such a sum shall be a civil
debt recoverable summarily.
The commissioner may by written notice appoint any person, bank or institution to be an agent
of the society for the purposes of collection and recovery of a debt owed to the society.
The agent shall pay the amount specified in the notice out of any monies which may at any time
during the 12 months following the date of the notice be held by him for the employer or are
due from him to the employer.
Where the agent claims to be or to have become unable to comply with this by reason of lack of
money held or due from him, he shall give a written notification and cancel or amend the notice
accordingly or if he is not satisfied with the reasons, reject the notification in writing.
Where an agent fails to notify the commission or the notification is rejected, it shall be
presumed that the agent has sufficient money for repayment of the amount specified in the
notice.
If he fails to pay the amount specified in the notice within 30 days from the date of service or
the date on which any money came to his hands or became due to him from the employer, then
he shall be liable for the amount specified in the notification as if he were the employer.
In any proceedings for the collection or recovery of the amount specified in the notice it shall
not be a defence for the agent to claim lack of money.
This applies notwithstanding that the failure to remit the sum deducted may constitute an
offence under some other law for which the employer has been prosecuted or is being or is
likely to be prosecuted.
Employer includes any person, firm or organization holding remuneration or payment for
produce of a society member and the term employee includes any person who receives
remuneration or payment for produce from such persons, firm or organization.
Page

which may, at any time during the twelve months following the date of the notice, be held by him for the
employer for the employer or are due from him to the employer.
5. Where an agent claims to be or to have become unable to comply with subsection (3) by reason of lack of
moneys held by or due from him, he shall give a written notification to the commissioner stating the
reasons for his inability and the commissioner may
a) accept the notification and cancel or amend the notice accordingly; or
b) if he is not satisfied with the reasons, reject the notification in writing.
6. Where an agent fails to notify the commissioner or the notification is rejected, it shall be presumed that
the agent has sufficient moneys for the payment of the amount specified in the notice.
7. Where an agent fails to pay the amount specified in the notice within thirty days from the date of service
or the date on which any moneys come into his hands for or become due to him from the employer, the
agent shall be liable for the amount specified in the notification as if he were the employer.
8. In any proceedings for the collection or recovery of the amount specified in the notice, it shall not be a
defence for the agent to claim lack of moneys.
9. This section shall apply not withstanding that the failure under subsection (1) to remit the sum deducted
may constitute an offence under some other law for which the employer has been prosecuted, or is being
or is likely to be prosecuted.
10. In this section employer includes any person, firm or organization holding remuneration or payment for
produce of a member of a co-operative society and the term employee includes any person who
receives remuneration or payment for produce from such persons or firm or organization.
f. Members Shares Not To Be Subject To Attachment:

Under section 36, the share or interest of a member in the capital of a co-operative or 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.
36.Member's share not subject to attachment

Subject to section 34, the share or interest of a member in the capital of a cooperative 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 such
member, and a trustee bankruptcy under the law relating to bankruptcy shall not have any claim on such share or
interest.
Provided that, where a co-operative society is dissolved, the share or interest of any member who is adjudged
bankrupt under such law.
37.Liability of past members

The liability of a past member of a co-operative 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.
47
Page
g. Liability Of Past Members:

In section 37, 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.

Provided that, in the case of a co-operative society with limited liability, if the first audit of the accounts of such
society after his ceasing to be a member discloses that the society is solvent, the financial liability of such past
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.
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;
Page
i. Transfer of Shares or Interest of a Deceased Member:

Section 39 provides as follows: 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;
ii.
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
iii.
If either of such persons is not qualified under the Act or bylaws or the society rules for
membership, 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 to 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
48
38.Liability of deceased members

The estate of a deceased member shall be liable for the debts of the co-operative society as they existed at the
time of his death, and proceedings in respect thereof may be commenced within one year of the death:
Provided that:i.
in the case of a co-operative society with limited liability, if the first audit of the accounts of the society
after the death discloses a credit balance in favour of the society, the financial liability of the estate shall
cease forthwith; and
ii.
a personal representative shall not be liable except in respect of assets in his possession or under his
control.

valid and effectual against any demand made upon the society by any other
person.
39.Transfer of share or interest of deceased members
1. On the death of a member, a co-operative society may transfer the share or interest of the deceased
member to:
a) the person nominated in accordance with this Act and any rules made there-under; or
b) 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 member; or
c) if either of such persons is not qualified under this Act and any rules there-under or the by-laws
of such society for membership, 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, as the case may be, a sum representing the value of such member's share or
interest ascertained in accordance with any rules made under this Act or the by-laws of the
society:
Provided that:i.
in the case of a co-operative society with unlimited liability, such nominee or personal
representative, as the case may be, may require the society to pay him the value of the
share or interest of the deceased member ascertained in the manner mentioned in this
sub-section: or
ii.
in the case of a co-operative society with limited liability, the society shall transfer the
share or interest of the deceased member to such nominee or personal representative,
as the case may be, being qualified in accordance with this Act or any rules made thereunder or the by-laws of such society for membership of the society, or on his application
within one month of the death, to any person specified in the application, who is so
qualified.
2. A co-operative society shall pay all other moneys due to the deceased member from the society to such
nominee or personal representative, as the case may be.
3. All transfers and payments made by a co-operative society in accordance with this section shall be valid
and effectual against any demand made upon the society by any other person.
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.
40.Evidence of member's interest in society

1. Any register or list of members or of shares which are kept by a co-operative society shall be prima facie
evidence of any of the following particulars entered therein.
a) the date on which the name of any person was entered in such register or list, as a member;
b) the date on which any such person ceased to be a member; and
c) the number of shares held by any member.
2. A copy of any entry in a book of a co-operative society regularly kept in the course of its business, shall, if
49
Page
j. Evidence of Members Interest:

Under section 40, 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;

certified in accordance with the rules made under this Act, be prima facie evidence in any proceedings of
the existence of such entry, and of matters, transactions, and accounts, therein recorded.
k. Restriction on Production of Society Books:

Section 41 states that No officer of a co-operative society shall in any legal proceedings to
which the society or liquidator is not a party may be compelled to produce any of the societys
books where the contents can be proved as herein above mentioned [under section 40] or to
appear as a witness to prove the matters transactions and accounts therein recorded unless the
court for special cause otherwise orders.
41.Restriction on production of society's books

No officer of a co-operative 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 under section 40 of
this Act or to appear as a witness to prove the matters, transactions, and accounts therein recorded, unless the
court, for special cause, otherwise orders.
9. PROPERTY AND FUNDS OF CO-OPERATIVE SOCIETIES

Under Part 10 of the Statute

a) Application of Societies Property and Funds:
Section 42 provides that society property and funds shall only be applied for its benefit and its
members benefit.
This means that property and money of a society can only be used in any manner consistent
with the requirements of the Act, Rules and the Society by-laws.
42.Application of society's property and funds

The property and funds of a co-operative society shall only be applied for the benefit of the society and, its
members, in accordance with the provisions of this Act, the rules made hereunder and the by-laws of the society.
b) Restriction on Giving Loans

Section 43 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 general meeting of the society to that effect.
c) Restriction on Borrowing:
Section 44 of the statute provides that a society may receive deposits and receipts loans from
non-members only to such extent and under such conditions as its bylaws or rules allow under
Page
50
43.Restriction on giving loans

A co-operative society shall not make a loan nor allow any credit, to any person other than a member, unless its
by-laws expressly so provide subject to a resolution passed at the general meeting of the society to that effect.

this Act and for purposes of that section, a deposit of money under a hire purchase agreement
shall be deemed to be a loan.
44.Restriction on borrowing
A co-operative society may receive deposits and loans from persons who are not members only to such extent and
under such conditions as may be prescribed by its by-laws or by rules under this Act, and for the purpose of this
section a deposit of money under a hire-purchase agreement shall be deemed to be a loan.
(d)
Investment of Society Funds:
Section 45 provides that a society may invest or deposit its funds only in the following:
(a)
(b)
(c)
(d)
(e)
In the Post Office Savings Bank;

In and upon such investments and securities as are for the time being authorised for
investment of Trust Funds;
In the Shares of any other cooperative;
With any bank licensed under the Banking Act; and
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.
45.Investment of society's funds

A co-operative society may invest or deposit its funds only:a) in the Post Office Savings Bank;
b) in and upon such investments and securities as are for the time being authorized for the investment of
trust funds;
c) in the shares of any other co-operative society;
d) with any bank licensed under the Banking Act;
e) in the stock of 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 a general meeting of the said society.
46.Declaration and payment of bonus

1. Subject to this section, every co-operative society shall declare each year all bonuses due to members;
but, where the bonuses are required for re-investment by the society for capital development, or for the
redemption of bonus certificates, the society shall issue bonus certificates to its members in lieu of cash
payments, redeemable from a revolving fund established by the society for that purpose.
51
Page
(e)
Declaration and Payment of Bonus:
Under section 46, 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.
Section 46(2) provides that 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.
Under section 46(3), 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.

2.
No co-operative 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 the
dividend, bonus or distribution is to be made.
3. A co-operative society shall pay a dividend at such rate as may be recommended by the management
committee and approved by the annual general meeting of the society.
(f)
Maintenance of a Reserve Fund:
Section 47 of the Act provides that every society which does or can derive surplus from its
transactions 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.
The 1997 Act was amended in 2004 to provide for the following:
a)
b)
c)
That the reserve fund shall be invested in the manner provided for under section
45 of the Act
The reserve fund shall be indivisible and no member shall be entitled to claim a
specific share of it.
Upon the dissolution of the society, the assets under the reserve fund shall be
applied in the discharge of the liabilities of the society.
47.Maintenance of reserve fund

1. Every co-operative society which does or can derive surplus from its transactions shall maintain a reserve
fund.
2. A Co-operative society may carry to the reserve fund such portion of the net surplus in each year as may
be prescribed by rules made under this Act or by the by-laws of the society.
3. The reserve fund shall be invested in the manner provided for in section 45 of this Act.
4. The reserve fund set up under this section shall be indivisible and no member shall be entitled to claim a
specific share of it.
5. Upon the dissolution of a co-operative society, the assets represented by the reserve fund shall be applied
in the discharge of the liabilities of the society.
(g)
Distribution of Net Balance
Section 48 provides that subject to sections 46 and 47, the net balance of each year with any
sum available for distribution from previous years may be distributed in the manner prescribed
by the rules made under the Act or by the bylaws of the society i.e. after the transfer of the
statutory reserve fund and the payment of bonuses and dividends to members, whatever
balance of the surplus is remaining may be distributed in the manner prescribed by the Act, the
Rules and each societies bylaws.
Page
52
48.Distribution of net balance

Subject to sections 46 and 47, the net balance of each year with, any sum available for distribution from previous
years, may be distributed in the manner prescribed by rules made under this Act or by the by-laws of the society.

10. CHARGES BY COOPERATIVE SOCIETIES
Under section 49, 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 a special resolution by the general
meeting.
49.Creating charge over society's property
A co-operative society may from time to time, charge the whole or any part of its property, if its by-laws expressly
empower it to do so, subject to a special resolution by the general meeting.
Vide Section 50, such charge shall comply with the provisions of the law applicable to it. It is the
duty of every cooperative to register with the commissioner every charge created and its
particulars.
50.Charge to comply with applicable law

A charge created by a co-operative society in accordance with section 49 of this Act shall comply with the
provisions of the law applicable to the particular type of charge.
Vide Section 51, 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
be entitled to recover from the society the fees paid for registration.
There is a further provision in section 51[2] which is an amendment by the 2004 Act and it
provides that if any cooperative fails to send to the Commissioner for registration the particulars
of any charge created within the 30 days 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 not
exceeding Kshs 2000 for everyday during which the default continues.
Under section 52, it is provided that the commissioner 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 for each charge with respect to each of them the following particulars:
i.
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;
Page
53
51.Charges to be registered with the Commissioner

1. It shall be the duty of every co-operative society to register with the Commissioner, every charge created
by it and the particulars thereof:
Provided that registration of a charge may be effected on the application of any person interested
therein:
Provided further that where registration is effected on the application of a person other than the cooperative society, such person shall be entitled to recover from the co-operative society the amount of
any fees properly paid by him to the Commissioner for such registration:
2. If any co-operative society fails to send to the Commissioner for registration the particulars of any charge
created by it within thirty days, then unless the registration has been effected by some other person
within that period, every officer of the society shall be guilty of an offence and shall be liable to a fine not
exceeding two thousand shillings for every day during which the default continues.

ii.
iii.
iv.
The amount secured by the charge;

Show particulars of the property charged;
The persons entitled to the charge;
52.Register of charges
1. The Commissioner shall, with respect to each co-operative society, register in such form as may be
prescribed by or under this Act, all charges requiring registration and shall enter in the register, with
respect to every charge, the following particulars:
a) For a charge created by the society, the date of its creation, and for a charge existing on property
acquired by the society, the date of the acquisition of the property;
b) the amount secured by the charge;
c) short particulars of the property charged; and (d) the persons entitled to the charge.
2. The Commissioner shall issue a certificate under his hand of the registration of any charge registered
under this Act stating the amount secured and the certificate shall be conclusive evidence that the
requirements of this Act as to registration of charges to have been complied with.
3. The register kept in pursuance of this section shall be open for inspection by any interested person on
payment of the prescribed fee.
4. The Commissioner shall keep a chronological index in the prescribed form and containing the prescribed
particulars, of the charges entered in the register.

Under Section 53; The commissioner 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 of charges shall be open for inspection by any interested person on payment of the
prescribed fee.
The commissioner 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 debt 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.

Under Section 54; If any person obtains an order for the appointment of a receiver or manager
of the property of a society or if the commissioner 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 commissioner who shall enter the notice
in the register of charges.
Where such appointed person, receiver or manager, ceases to act he shall give written notice of
the fact to the commissioner who shall enter the notice in the register of charges.
If any person makes default in complying with these requirements, then he shall be guilty of
the offence and liable to a fine of Shs 5,000 for every day during which the default continues.
Page
54
53.Certificate of satisfaction of charges

The Commissioner may, on evidence being given to his satisfaction that the debt for which any registered charge
was given has been paid or satisfied, order that a memorandum of satisfaction be entered on the register, and
shall if required,furnish the co-operative society concerned with a copy thereof.

54.Receiver to give notice of his appointment
1. If any person obtains an order for the appointment of receiver or manager of the property of a cooperative society, or appoints such a receiver or manager under any powers contained in any instrument,
he shall, within seven days from the date of the order or of the appointment under the said powers, give
written notice of the fact to the Commissioner and the Commissioner shall enter the notice in the register
of charges.
2. Where any person appointed receiver or manager of the property of a cooperative society under the
powers contained in any instrument ceases to act as such receiver or manager, he shall, on so ceasing,
give written notice of the fact to the Commissioner and the Commissioner shall enter the notice in the
register of charges.
3. If any person defaults in complying with the requirements of this section, he shall be guilty of an offence
and shall be liable to a fine not exceeding five thousand shillings for every day during which the default
continues.
Every society under section 55, shall cause a copy of every instrument of a charge requiring
registration to be kept at its registered address. At that address there shall be kept a register of
charges in which shall be entered all charges specifically affecting the society property, the
property affected and also of floating charges on the property or assets of the society giving in
each case a short description of the property charged, the amount of the charge and the name
of the person entitled thereto.
55.Society to keep register of instrument of charge at registered office

Every co-operative society shall cause a copy of every instrument of a charge which is required by this Act to be
registered to be kept at the registered address of the society.
Under Section 56 (2) it provides that if any office of a society knowingly omits or permits the
omission of any entry required to be made in the register, then he shall be guilty of an offence
and liable to a fine not exceeding Shs 10,000.
Under Section 57; The copies of the instruments creating charges which are required to be
registered and the register of charges kept by the society, shall be open during business hours to
inspection by any creditor or member without fee subject to such reasonable restrictions as the
society in General Meeting may impose. Any officer who refuses to allow inspection shall be
guilty of an offence and liable to a fine not exceeding Shs 2000 for every day of continuance of
the offence.
Page
55
56.Society to keep register of particulars of charges

1. Every co-operative society shall keep, at the registered address of the society, a register of charges in
which shall be entered all charges specifically affecting the property of the society and all floating charges
on the property or assets of the society, giving in each case a short description of the property charged,
the amount of the charge, and the name of the person entitled thereto.
2. If any officer of a co-operative society knowingly omits, or permits the omission of any entry required to
be made in any register in pursuance of this section, he shall be guilty of an offence and shall be liable to a
fine not exceeding ten thousand shillings.

57.Right of members and creditors to inspect register of charges
1. The copies of the instruments creating charges which are required by this Act to be registered and the
register of charges kept by the co-operative society under section 52 shall be open, during business hours,
to inspection by any creditor or member of the society, without fee, subject to such reasonable
restrictions as the society, in a general meeting, may impose. Provided however, that not more than two
hours in each day shall be allowed for inspection, and the register of charges shall also be open to
inspection by any other person on payment of the prescribed fee.
2. Any officer of a co-operative society who refuses to allow inspection of the register of charges or copies of
the instruments creating charges in accordance with subsection (1) of this section, or who permits such
refusal, shall be guilty of an offence and shall be liable to a fine not exceeding two thousand shillings for
every day during which the refusal of permission continues, and the court may order an immediate
inspection of such register or copies.
11. INQUIRY & INSPECTION
PART XII - INQUIRY AND INSPECTION

58.Inquiry by Commissioner
1. The Commissioner 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 present and voting at a meeting of the society which has been
duly advertised, hold an inquiry or direct some person authorized by him in writing to hold an inquiry, into
the by-laws, working and financial conditions of any co-operative society.
2. All officers and members of the co-operative society shall produce such cash, accounts, books, documents
and securities of the society, and furnish such information in regard to the affairs of the society, as the
person holding the inquiry may require.
3. The commissioner shall report the findings of his inquiry at a general meeting of the society and shall give
directions for the implementation of the recommendations of the inquiry report.
4. Where the commissioner is satisfied, after due inquiry, that the committee of a co-operative society is not
performing its duties properly, he may
56
Page
(a)
In Relation To Inquiry
Section 58 provides that the commissioner 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 2004 amendment Act added the following section 58[3] to the Act and it provides that
the commissioner shall report the findings of his inquiry at a general meeting of the society and
shall give recommendations of the inquiry report.
A further amendment was done to the 1997 Act by sec 58(4] which states that where the
commissioner is satisfied after due inquiry that the committee of a society is not performing its
duties properly, he may:
i.
Dissolve the committee and
ii.
Cause to be appointed an interim committee consisting not more than five
members from among the society members for a period not exceeding 90
days.
Section 58(5) A person who contradicts section 58(2) shall be guilty of an offence and liable to a
fine not exceeding Shs 2,000 for every day during which the offence continues.

a) Dissolve the committee, and
b) Cause to be appointed an interim committee consisting not more than five members from
among the members of the society for a period not exceeding ninety days.
5. A person who contravenes subsection (2) shall be guilty of an offence and shall be liable to a fine not
exceeding two thousand shillings for each day during which the offence continues.
(b)
In relation to Inspection:
Section 59 provides that the commissioner may if he thinks fit on the application of a creditor of
a society inspect or direct some persons authorised by him in writing to inspect the books of the
society if
a) The creditor satisfied the commissioner that the debt is a sum then due and he has
demanded payment thereof and has not received satisfaction within a reasonable time;
b) The applicant deposits with the commissioner such sum as security for the expenses of
the inspection as the commissioner may require. After the inquiry the commissioner
shall inform the creditor of the results of the inspection.
59.Inspection of books of indebted society

1. The Commissioner may, if he thinks fit, on the application of a creditor of a co-operative society, inspect,
or direct any person authorized by him in writing to inspect, the books of the society, ifa) The creditor satisfies the Commissioner that the debt is a sum then due, and that he has
demanded payment thereof and has not received satisfaction within a reasonable time; and
b) The applicant deposits with the Commissioner such sum as security for the expenses of the
inspection as the Commissioner may require.
2. The Commissioner shall inform the creditor of the results of the inspection.
Section 60 provides that where an inquiry is held under section 58 or an inspection is made
under section 59 of the Act, the commissioner may under a certificate by his hand, make an
order apportioning the expenses or such part of the expenses as he considers proper 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 commissioners certificate.
Page
57
60.Expenses of Inquiry
1. Where an inquiry is held under section 58, or an inspection is made under section 59 of this Act, the
Commissioner may, by a certificate under his hand, make an order apportioning the expenses, or such
part of the expenses as he considers proper, between the society, the members or creditor demanding
the inquiry or inspection, and the officers or former officers of the society; and the decision of the
Commissioner thereon shall be final.
2. Any sum awarded by way of expenses under subsection (1) shall be a civil debt recoverable summarily on
production of the certificate referred to in that subsection.

The 2004 amendment Act added 60 (A), which says Notwithstanding the provisions of section
58 and 59, the commissioner may from time to time carry out impromptu inspections into the
affairs of a co-operative society.
60A.Routine inspection
Not withstanding the provisions of sections 58 and 59, the commissioner may from time to time carry out
impromptu inspection into the affairs of a co-operative society.
12. DISSOLUTION OF SOCIETIES

(a)
Procedure of Dissolution
Part 12 of the Statute
Section 61 states as follows: If the commissioner after holding an inquiry or making an
inspection or receiving an application made by at least three quarters of the members is 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 High Court.
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 filed within time the order shall not take effect unless
confirmed by the minister or by the High Court.
Where the commissioner 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
commissioner.
Page
58
61.Procedure for dissolution

1. If the Commissioner, after holding an inquiry under section 58 or making an inspection under section 59
of this Act, or receiving an application made by at least three fourths of the members of a co-operative
society, is of the opinion that the society ought to be dissolved, he may, in writing, order the dissolution
of the society and subsequent cancellation of registration.
2. Any member of a co-operative society who feels aggrieved by an order under subsection (1) may, within
two months after the making of such order, appeal against the order to the Minister with a final appeal to
the High Court.
3. 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 filed within the prescribed time the order shall not take effect unless it is
confirmed by the Minister or by the High Court as the case may be.
4. Where the Commissioner makes an order under subsection (1) he shall make such further order as he
thinks fit for the custody of the books and documents and the protection of the assets of the society.
5. No co-operative society shall be dissolved or wound up save by an order of the Commissioner.

b) Cancellation of Registration and Effects of Cancellation

The 2004 Amendment Act repealed section 62 of the 1997 Act and now provides as follows in
relation to cancellation of registration. Where a society has
a) Less than the prescribed number of members
b) Failed to file returns with the commissioner for a period of three years or
c) Failed to achieve its objects
62.Cancellation of registration
1. Where a co-operative society has:a) less than the prescribed number of members; or
b) failed to file returns with the commissioner for a period of three years; or
c) failed to achieve its objects the Commissioner may, in writing, order the cancellation of its
registration and the dissolution of the society and the order shall take effect immediately.
2. A person aggrieved by an order of the commissioner under subsection (1) may appeal against such order
to the Minister within thirty days of the order.
The commissioner may in writing order its dissolution and that order takes effect immediately
and under section 63 where registration is cancelled the society ceases to exist as a body
corporate from the date the order takes effect.
63.Effects of cancellation
Where the registration of a co-operative society is cancelled, the society shall cease 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.
64.Application of Companies Act, Cap.486

1. The sections of the Companies Act specified in Part (1) of the Schedule to this Act, modified in accordance
with Part II of the schedule, shall apply mutatis mutandis in relation to the winding-up of a co-operative
society as they apply to that of a company registered under that Act.
2. The Minister may, by order, amend the schedule to this Act.
59
65. Appointment of liquidator

Where the registration of a co-operative society ceases under Section 7 or is cancelled under Section 61 or 62 of
this Act, the Commissioner may appoint one or more persons to be liquidator or liquidators of that society
(hereinafter referred to as the liquidator) and all the property of such society shall vest in the liquidator from the
date upon which the order of cancellation takes effect.
Page
i.
c) Liquidation and the Powers of a Liquidator and Commissioner

Appointment of a Liquidator
In section 65, where a registration of a society is cancelled the commissioner may appoint one
or more persons to be liquidator or liquidators of that society and all the property of such a
society vests in the liquidator from the date upon which the order of cancellation takes effect.

ii.
Powers of a Liquidator
Under section 66, the liquidator has the following powers: Once a liquidator has been appointed
he has the following powers:
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 approved them;
(b)
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;
(c)
He has the power to appoint an advocate to assist him in the performance of his duties;
(d)
He has the power to refer disputes to the Tribunal in the prescribed manner;
(e)
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;
(f)
He has the power to investigate all claims against the society and to decide questions of
priority arising between the claimants;
(g)
He has the power to call such meeting of members and creditors as may be necessary for
the proper conduct of the liquidation;
(h)
He has the power to sell the moveable and immovable property and rights of action of the
society by public auction or private contracts with power to transfer the whole thereof to
any person or company or to transfer the same in parcels (blocks);
(i)
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;
(j)
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;
(k)
He has the power to take possession of the books, documents and assets of the society;
(l)
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 commissioner;
(m)
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;
(n)
He has the power to compromise with the approval of the commissioner any claim by or
against the society;
(o)
He has the power to apply to the commissioner for his discharge from the duties of
liquidator after completion of the liquidation proceedings.
In the exercise of his powers the liquidator under section 66(2) 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.
Page
68.Powers of liquidator
1. The liquidator shall, subject to this Act, have the following powers:a) to appoint a day, in the prescribed manner, before which the creditors whose claims are not
already recorded in the books of the co-operative society shall state their claims for admission,
or be excluded from any distribution made before they have proved them;
b) to institute and defend suits and other legal proceedings by, and 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.
c) to appoint an advocate to assist him in the performance of his duties;
60
(a)

d) to refer disputes to the Tribunal in the prescribed manner;
e) to determine from time to time the contributions to be made by the members and past
members, and by the estates of deceased members of the society, to the funds of the society;
f) to investigate all claims against the society, and subject to this Act, to decide questions of priority
arising between claimants;
g) to call such meeting of members and creditors as may be necessary for the proper conduct of the
liquidation;
h) to sell the movable and immovable property and rights of action of the society, by public auction
or private contract with power to transfer the whole thereof to any person or company or to
transfer the same in parcels;
i) to carry on the business of the society as far as may be necessary for the proper liquidation of
the affairs of the society;
j) to determine, from time to time, by what persons and in what proportion the expenses of the
liquidation are to be borne;
k) to take possession of the books, documents and assets of the society;
l) 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 Commissioner;
m) to give such directions in regard to the disposal of the books and documents of the society as
may appear to him to be necessary for winding up the affairs of the society;
n) to compromise, with the approval of the Commissioner, any claim by, or against, the society;
o) to apply to the Commissioner for his discharge from the duties of liquidator after completion of
the liquidation proceedings.
2. The liquidator shall have power to summon and enforce the attendance of witnesses and to compel the
production of documents by the same means and so far as maybe necessary, in the same manner as is
provided in the case of a court under the Civil Procedure Act in so far as such powers are necessary for
carrying out the purposes of this section.
iii.
Powers of a Commissioner during Liquidation

Section 67 establishes an account called the Cooperative Societies Liquidation Account which is
required to be kept by the Commissioner with such banks as may be prescribed and to be
administered in the prescribed manner.
67.Liquidation account of societies

An account, to be called the Co-operative societies Liquidation Account, shall be kept by the Commissioner with
such bank as may be prescribed and shall be administered in the prescribed manner.
(g)
Rescind or vary any order made by the liquidator and make any new order he thinks proper;
Remove the liquidator from office and appoint a new liquidator in his place;
Call for all books, documents and assets of the society;
By order in writing in any particular case, limit the powers of the liquidator;
At his discretion require accounts to be rendered to him by the liquidator;
Procure the auditing of the liquidators account and authorise the distribution of the assets
of the society;
Make an order for the remuneration of the liquidator;
61
(a)
(b)
(c)
(d)
(e)
(f)
In the exercise of his powers the liquidator is subject to control of the commissioner and also
under section 68 the commissioner may do any of the following things:
Page
(j)
(k)
(l)

68.Powers of Commissioner during liquidation

1. The liquidator shall exercise his powers subject to the guidance and control of the Commissioner and to
any limitations imposed by the Commissioner, and the Commissioner may:
a) rescind or vary any order made by the liquidator and make any new order he thinks proper;
b) remove 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 conferred by section
66;
e) at his discretion, require accounts to be rendered to the Commissioner by the Liquidator;
f) procure the auditing of the liquidators accounts and authorize 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 of the society and any trustee, banker, receiver, agent or
officer of the society to pay, deliver, convey, surrender or transfer forthwith, or within such time
as he shall direct, to the liquidator, any money, property, books or papers in his hands to which
the society appears to be entitled;
j) appoint a special manager for the management of the business of the society 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 any 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.
2. The decision of the Tribunal on any matter referred to it under subsection (1) (k) shall be binding upon the
parties and shall be exercisable in the like manner as an order made by the Commissioner under
subsection (1) (a).
3. Where any matter is referred to the Tribunal under subsection (l) (k) the cost of the reference and award
shall be in the discretion of the Tribunal, who may direct to and by whom, and in what manner, those
costs or any part thereof shall be paid, and may tax or settle the amount of costs to be so paid by any
party thereof.
62
(i)
Grant a discharge to the liquidator on application by him after completion of the liquidation
proceedings;
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 the liquidator, any money, property, books or papers in his
hands to which the society appears to be entitled.
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;
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;
Require the indemnification of the liquidator.
Section 68(2) provides that 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 commissioner.
Where any matter is referred to a tribunal the cost of reference and award is under discretion of
the tribunal who may direct to and by whom and in what manner those costs or any part
thereof shall be paid and may tax or settle the amount of costs to be so paid by any party
thereof.
Page
(h)

iii.

Appeals, Enforcement and Institution of Winding Up Proceedings

Vide Section 69 Anyone aggrieved by an order or decision of the commissioner or the
liquidator may appeal against it to the tribunal within 30 days thereof.
Anyone aggrieved by the decision of the tribunal may appeal to the High Court within 14 days
thereof.
69. Appeal against order of liquidator or Commissioner.

1. A person aggrieved by any order or decision of the Commissioner or the liquidator under section 66 or
section 68, as the case may be, may appeal against the order or decision to the Minister within thirty
days of the order or decision.
2. A person aggrieved by a decision of the Minister under subsection (1) may appeal to the High Court within
14 days of the decision.
Vide Section 70; Any order or decision made on being filed in court may be enforced in court in
the same manner as if it were a court order or decision.
70.Enforcement of orders
Subject to section 68 and 69, any order or decision made under section 66 or section 68 on being filed in the
court, may be enforced in a court in the same manner as if the order or decision were an order or decision of the
court.
Vide Section 71: If the liquidator of a society whose registration has been cancelled alleges that
any one of the offences specified in the applied sections of the Companies Act has been
committed, he shall report the facts to the commissioner who shall if he thinks fit, institute such
proceedings as may be necessary.
71.Institution of winding up Proceedings

If the liquidator of a society whose registration has been cancelled alleges that any of the offences mentioned in
sections 318, 319, 320, 321, 322 or 323 of the Companies Act have been committed, he shall report the fact to the
Commissioner, who shall, if he thinks fit, institute such proceedings as may be necessary.
72.Powers to restrain convicted person from being officers of society

Any person who is convicted of an offence under sections of the Companies Act specified in section 71 shall cease
to be, or remain, an officer of a co-operative society, and shall cease to be concerned in or take part in, whether
directly or indirectly, the management of a co-operative society, for a period of five years from the date of his
conviction, and any person acting as, or purporting to be acting as such an officer, or being so concerned in, or
taking part in the management of a co-operative society during that period, shall be guilty of an offence and shall
be liable to imprisonment for a term not exceeding two years.
63
Section 72 states that: 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 or take part in whether directly or indirectly 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.
Page

11. SURCHARGE
i.
Powers to surcharge and Officer of a cooperative
Under Section 73 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
a. Has misapplied or retained or become liable or accountable for any money or property
of the society or
b. Has been guilty of misfeasance or breach of trust in relation to the society the
commissioner 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 commissioners 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
commissioner or to contribute such sum to the assets of the society by way of compensation for
the misapplication as he deems just.
This applies not withstanding that the act or default by reason of which the order is made may
constitute an offence under another law for which the person has been prosecuted or is likely to
be prosecuted.
74.Power to surcharge officers of a co-operative society

1. Where it appears that any person who has taken part in the organization or management of a cooperative society, or any past or present officer or member of the society
a) has misapplied or retained or become liable or accountable for any money or property of the
society; or
b) has been guilty of misfeasance or breach of trust in relation to the society, the Commissioner
may, on his own accord, or on the application of the liquidator or of any creditor or member,
inquire into the conduct of such person.
2. Upon inquiry under subsection (1), the commissioner may, if he considers it appropriate, make an order
requiring the person to repay or restore the money or property or any part thereof to the co-operative
society together with interest at such rate as the Commissioner thinks just or to contribute such sum to
the assets of the society by way of compensation as the Commissioner deems just.
3. This section shall apply notwithstanding that the act or default by reason of which the order is made may
constitute an offence under some other law for which the person has been prosecuted, or is being or is
likely to be prosecuted.
Appeal against the Order

Section 74 of the 1997 Act was repealed and replaced by the following under the 2004 Act.
It provides that any person aggrieved by the decision taken by the order of the commission may
within 30 days appeal to the tribunal and to the High Court on matters of law.
Page
74.Appeal against order

1. Any person aggrieved by the decision taken by any order of the Commissioner under Section 73(1), may
within thirty days appeal to the tribunal.
2. A party aggrieved by the decision of the tribunal may within thirty days appeal to the High Court on
matters of law.
64
ii.


iii.
Recovery of surcharge
Section 75 of the 1997 Act was repealed and replaced by the following under the 2004 Act. It
provides for the recovery of surcharges and states that subject to s.74, an order made pursuant
to s.73:For 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 and without prejudice to the power of the committee of the society to take action for
the recovery of the amount surcharged.
75. Recovery of surcharge

1. Subject to subsection 74, an order made pursuant to section 73 for any moneys to be repaid or
contributed to a co-operative society shall be filed with the tribunal and shall, without prejudice to any
other mode of recovery, be a civil debt recoverable summarily.
2. Without prejudice to the powers by the committee of a society to take action for recovery of the sum
surcharged under section 73, the commissioner may, on behalf of the society, institute such action.
14. SETTLEMENT OF DISPUTE

i.
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.
Section 76[2] of the 1997 statute was repealed and substituted by the following under the 2004
Act: A dispute for the purpose of this section shall include:
Page
PART XIV - SETTLEMENT OF DISPUTES

76.Disputes
1. If any dispute concerning the business of a co-operative society 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 of the society; or
c) between the society and any other co-operative society; it shall be referred to the Tribunal.
2. A dispute for the purpose of this section shall include
65
1. A claim by a society for any debt or demand due to it from the nominee or personal
representative of a deceased member whether such debt or demand is admitted or not
2. A claim by member, past member or nominee or personal representative of a deceased member
for any debt or demand due from the society whether such debt or demand is admitted or not.
3. 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.

a) a claim by a co-operative 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; or
b) a claim by a member or past member, or from the nominee or personal representative of a
deceased member for any debt or demand due from a cooperative society, whether such debt or
demand is admitted or not.
ii.
Establishment of a Co-operative Tribunal

Section 77 of the 1997 Act was repealed and amended and replaced by the following section
under 2004 Act: It states that there is hereby established a tribunal to be known as the cooperative tribunal. It shall consist of the following members:
a. A chairman and deputy chairman appointed by the minister on the nomination of the
JSC
b. An advocate of the High Court of Kenya appointed by the minister on the nomination of
the LSK
c. A lawyer with experience in co-operative law appointed by the minister
d. Three persons with at least ten years experience in the field of co-operative
management and practice, appointed by the minister in consultation with the apex
society.
a)
b)
c)
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;
If he is removed from membership of the tribunal by the minister, after doing poorly 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 or failure to attend three consecutive sittings of
the tribunal without reasonable cause;
If he resigns from office.
77.Establishment of Cooperative Tribunal

1. There is hereby established a Tribunal to be known as the Co-operative Tribunal which shall consist of five
members:
a) a Chairman and deputy Chairman appointed by the Minister on the nomination of the Judicial
Service Commission;
b) an advocate of the High Court of Kenya appointed by the Minister on the nomination of the Law
Society of Kenya;
c) three persons with at least ten years experience in the field of co-operative management and
practice appointed by the Minister in consultation with the apex society.
66
Section 77[2] states, no person shall be qualified for appointment as chairman or deputy
chairman of the tribunal 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.
Has undergone legal training and is an advocate. All appointments to the tribunal are by Gazette
notice issued by the minister for a period of 3 years provided that no one shall serve for more
than two consecutive terms.
Section 77[4] states the office of a member of the tribunal shall become vacant under the
following circumstances;
Page

2.
No person shall be qualified for appointment as Chairman or deputy Chairman of the Tribunal unless he
holds, and has held for a total period of not less than five years, the qualifications specified in sections 12
and 13 of the Advocates Act.
3. All appointments to the Tribunal shall be by notice in the Gazette issued by the Minister and shall be for a
period of three years, provided that no one shall serve for more than two consecutive terms.
4. The office of a member of the Tribunal shall become vacant:
a) if he accepts any office the holding of which, if he were not a member of the Tribunal, would
make him ineligible for the appointments to office of a member of the Tribunal.
b) if he is removed from membership of the Tribunal by the Minister after due inquiry for failure to
discharge the functions of his office (whether arising from infirmity of body or mind or from any
other cause) or for misconduct; or
c) if he fails to attend three consecutive sittings of the Tribunal without reasonable cause.
iii.

Proceeding of a Tribunal
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 registrar, the commissioner 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 save where for good course is otherwise
directed and except as expressly provided the tribunal regulates its own procedure.
78.Proceedings of Tribunal
1. The Tribunal shall not be bound by the rules of evidence.
2. The Tribunal shall, upon an application made to it in writing by any party or a reference made to it by the
Commissioner, or any Committee or officer of a cooperative society on any matter relating to this Act, the
rules made hereunder or the by-laws of the society, inquire into the matter and make an award thereon,
and every award made shall be notified by the Tribunal to the parties concerned.
3. The Tribunal shall sit at such times and in such places as it may decide.
4. The proceedings of the Tribunal shall be open to the public save where the Tribunal, for good cause,
otherwise directs.
5. Except as expressly provided in this Act or any rules made there under, the Tribunal shall regulate its own
procedure.
iv.
Award of the Tribunal

Under Section 79[1] the Tribunal may
(a)
Fails to attend to the tribunal after being summoned;
Page
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)
67
1.

(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.
The 2004 Act adds: Where a tribunal enters judgment in terms of the award together with
costs, it shall issue a decree enforceable as a decree of court. Further, if after making an order
the tribunal discovers that it was based on a misrepresentation or a concealment of a material
fact by either party to the dispute it may order the guilty party to pay the other party such sum
as it is in its opinion sufficient compensation for any damage or loss suffered by other party as a
result of the misrepresentation or concealment. Finally, a tribunal shall have unlimited
geographical and pecuniary jurisdiction in matters of co-operative disputes.
Quorum
Section 80 provides that 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.
Page
v.
68
79.Award of Tribunal
1. The Tribunal may:a) make such orders for the purpose of securing the attendance of any person at any place, the
discovery or production of any document or the investigation of contravention of this Act as it
deems necessary or expedient;
b) take evidence on oath and may for that purpose administer oaths; or
c) on its own motion summon and hear any person as a witness;
2. Any person who:
a) fails to attend to the Tribunal after having been required to do so under subsection (1) (a);
b) refuses to take oath before the Tribunal 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 by the Tribunal;
c) knowingly gives false evidence or information which he knows to be misleading.
d) at any sitting of the Tribunal
i.
wilfully insults any member or officer of the Tribunal; or
ii.
wilfully interrupts the proceedings or commits any contempt of the Tribunal; shall be guilty
of an offence under this Act.
3. Where the Tribunal enters judgement in terms of the award together with costs, it shall issue a decree
which shall be enforceable as a decree of a court.
4. If, after making an order, the Tribunal discovers that the order was based on a misrepresentation or a
concealment of a material fact by either party to the dispute, the Tribunal may order the party guilty of
the misrepresentation or concealment to pay the other party such sum as is, in the opinion of the
Tribunal, sufficient compensation for any damage or loss suffered by the party as a result of the
misrepresentation or concealment.

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.
Section 80(4) provides that notwithstanding any other provision of the act, the chairman of the
tribunal acting alone shall have jurisdiction to deal with temporary injunctions.
Section 80[5] provides that 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.
80.Quorum for Tribunal

1. For the purposes of hearing and determining any cause or matter under this Act, the Chairman and two
other members of the Tribunal shall 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 such member or alone as the case may be.
2. A member of the Tribunal who has a direct interest in any matter which is the subject of the proceedings
before the Tribunal shall not take part in those proceedings.
3. Any matter considered by the Tribunal shall be decided by the votes of the majority of the members
constituting the Tribunal and voting, and the person presiding shall have a casting as well as a deliberate
vote. Provided that any point of law arising in any proceedings before the Tribunal shall be reserved to,
and pronounced upon, by the person presiding exclusively.
4. Notwithstanding any other provision of this Act; the Chairman of the Tribunal acting alone shall have
jurisdiction to deal with temporary injunctions.
5. Any power conferred or duty imposed by or under this Act on the Chairman may, unless a contrary
intention appears, be exercised or performed by the Deputy Chairman of the Tribunal if:
(a)
the Chairman is unable to exercise or perform that power or duty owing to
illness or absence;
(b)
the Chairman authorizes the Deputy Chairman to exercise or perform that
power or duty;
1.
2.
3.
4.
Confirm set aside or vary the order in question;

Remit the proceedings to the tribunal with such instructions for further consideration,
report proceedings or evidence as the court may deem fit to hear;
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;
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.
69
Appeals to High Court

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:
Page
vi.

81.Appeal to High Court
1. Any party aggrieved by any order of the Tribunal may, within thirty days appeal against such order to the
High Court: Provided that the High Court may, extend the period within which the appeal may be made.
2. Upon the hearing of an appeal under this section, the High Court may:
a) confirm, set aside or vary the order in question;
b) remit the proceedings to the Tribunal with such instructions for further consideration, report,
proceedings or evidence as the court may deem fit to give;
c) 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
d) make such other order as it may deem just, including an order as to costs of the appeal or of
earlier proceedings in the matter before the Tribunal.
3. The decision of the High Court on any appeal shall be final.
vii.
Powers to appoint an Assessor

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.
82.Power to appoint cooperative assessors

The Chairman of the Tribunal may appoint any person with special skills or knowledge on co-operative issues
which are the subject matter of any proceedings or inquiry before the Tribunal to act as an assessor in an advisory
capacity, in any case where it appear to the Chairman that such special skills or knowledge are required for proper
determination of the matter.
viii.
Contempt of Tribunal
Vide Section 83: 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.
83.Contempt of Tribunal
It shall be an offence for any person to engage in acts or make omissions amounting to contempt of the Tribunal
and the Tribunal may punish any such person for contempt in accordance with the provisions of this Act.
ix.
Remuneration of Members of the Tribunal

Section 84. The remuneration of the Chairman and Tribunal members shall be determined by
the minister from time to time.
84.Remuneration of members of Tribunal
There shall be paid to the Chairman and members of the Tribunal such remuneration and allowances as
the Minister shall, from time to time determine.
85.Appointment of secretary to Tribunal

1. The Minister shall appoint a public officer to be the secretary to the Tribunal who shall be paid such
allowances as the Minister shall determine.
70
Appointment of secretary to Tribunal

Further the minister under section 85 shall appoint a public officer to be secretary to the
tribunal whose allowances shall be determined by the minister.
Page
x.

2. No person shall be appointed under subsection (1) unless he holds the qualification specified under
section 12 and 13 of the Advocates Act.
xi.
Powers to establish benches of Tribunal

Vide Section 86: The minister is further empowered to establish one or more benches
(branches) of the tribunal in any part of Kenya, as he deems appropriate in consultation with the
chairman.
86.Powers to establish benches of Tribunal

The Minister may establish one or more benches of the Tribunal in any part of Kenya as he deems appropriate and
shall for that purpose provide for the constitution and jurisdiction of such benches, in consultation with the
Chairman of the Tribunal.
xii.
Right of parties before Tribunal

Vide Section 87: Any person who is a party to proceedings may appear in person or be
represented by an Advocate.
87.Right of parties before Tribunal

Any person who is a party to the proceedings before the Tribunal may appear in person or be represented by an
Advocate.
xiii.
Immunity
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.
Section 88[2] says 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.
88.Immunity
1. 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 duty as members of
the Tribunal, whether or not within the limits of their jurisdiction. Provided that they, at the time, in good
faith, believed themselves to have jurisdiction to do or order the act complained of.
2. No officer of the Tribunal or other person bound to execute the lawful warrants, orders or other
procedures of the Tribunal shall be liable to be sued in any court for the execution of a warrant, order of
process which he would have been bound to execute if within the jurisdiction of the Tribunal issuing it.
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
Page
71
GENERAL PROVISIONS: PART 15

Page
72

without a written approval of the commissioner 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.
See Kenya Gazette Supplement No. 89 Bills; Bill No. 27
Page
73
SAMPLE BY LAWS OF A COOPERATIVE SOCIETY
PART TWO
Page
74
PARTNERSHIPS

PARTNERSHIPS

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 (PA).
This Act is based on the English Partnership Act of 1890, the main object of which was to codify
the main principle of the pre-existing partnership law.
The rules of the common law and the doctrines of equity will therefore continue to apply only in
so far as they are not inconsistent with the express provisions of the Act.
In interpreting partnership law therefore, one must always look at the Act first and if its
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 PA states that; the rules of equity and common law applicable to partnerships
in England shall apply to parts in Kenya.
Existing rules applicable to partnership.

49. The rules of equity and common law applicable to partnerships in England shall apply to partnerships
in Kenya, except in so far as they are inconsistent with the provisions of this Act
Sec 3(1) PA defines partnership as the relation which subsists between persons carrying on a
business in common with a view of profit.
Definition of partnership
3. (1) Partnership is the relation which subsists between persons carrying on a business in common with
a view of profit.
(2) The relation between members of any company or association which is(a) registered as a company under the Companies Act or any other Act for the time being in force and
relating to the registration of Joint stock companies; or
(b) formed or incorporated by or in pursuance of any other Act or of any Order in Council, or Act of the
United Kingdom Parliament, or Letters Patent, or Royal Charter is not a partnership within the meaning
of this Act
Who is a Partner?
There is no statutory definition of the word partner but bearing in mind the statutory definition
of partnership it may safely be said that a partner is a person who has entered into a 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 three essential ingredients in a
partnership i.e.
1. There must be a business
75
If this relation exists in point of law, whatever arrangements the partners may have made
between themselves and however much they may have tried to reject the notion of partnership,
each of them will be regarded as a partner.
Therefore, once a relationship of partnership is established even if the business was run by one
party and the other partner(s) only participated in the profits, even such sleeping partners will
bear as much liability as the active partners for the debts and liabilities of the firm.
The term partner is a term of law and all partners are agents of each other.
Page

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 the PA as including every trade,
occupation or profession. This is a very uncertain definition.
Interpretation.
2. In this Act, except where inconsistent with the context- "business" includes every trade, occupation or
profession; "court" means the High Court or, where the gross assets of a partnership do not exceed fifty
thousand shillings, the Resident Magistrate's Court.
Probably the term business should best be confined to what is recognized among business
persons as commercial or professional business that is to say, callings in which persons hold
themselves out as willing to sell to everybody goods, skills, assistance or any other services.
The term common covers the sleeping partners and the term profits means the net profit that is
the difference between the net returns and the outgoings of the business i.e. 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.
Page
a) joint tenancy, tenancy in common, joint property, common property or pan ownership does not
of itself create a partnership as to anything so held or owned, whether the tenants or owners do
or do not share any profits made by the use thereof;
b) the sharing of gross returns does not of itself create a partnership, whether the persons sharing
those returns have or have not a joint or common right or interest in any property from which,
or from the use of which, the returns are derived;
c) the 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 a business, does not of itself make him a partner in the business; and
in particulari.
the receipt by a person of a debt or other liquidated amount by installments or
otherwise, out of the accruing profits of a business, does not of itself make him a
partner in the business or liable as such;
ii.
a contract for the remuneration of a servant or agent of a person engaged in a business
by a share of the profits of the business does not of itself make the servant or agent a
partner in the business or liable as such;
iii.
a person being the widow or child of a deceased partner and receiving by way of annuity
a portion of the profits made in the business in which the deceased person was a
partner is not, by reason only of that receipt, a partner in the business or liable as such;
iv.
the advance of money by way of loan to a person engaged, or about to engage, in any
business on a contract with that person that the lender shall receive a rate of interest
varying with the profits, or shall receive a share of the profits arising from carrying on
76
Rules for determining existence of partnership.

4. In determining whether a partnership does or does not exist, regard shall be had to the following
rules-
v.

the business, does not of itself make the lender a partner with the person or persons
carrying on the business or liable as such, provided that the contract is in writing, and
signed by or on behalf of all the parties thereto;
a person receiving, by way of annuity or otherwise. a portion of the profits of a business
in consideration of the sale by him of the goodwill of the business is not, by reason only
of that receipt, a partner in the business or liable as such.
However, all the rules in this section are very negative in tone and they do not state specifically
when a partnership exists but rather state when a partnership cannot be said to exist.
But until the end of the 19th 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:
CASE
Cox vs Hickman [1860] 8 HLC 268
In which it was held that although a right to participate in profits is a strong taste of partnership and
though there may be cases where from such participation alone, partnership would 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. So
in order to determine the existence or the non-existence of a partnership we must therefore look at all
the facts and not just a mere participation in the profits.
Sec 4[c] PA provides that a receipt by a person of a share of the profits in the business is prima
facie evidence that he is a partner in the business but the receipt of such a share or in the
payment contingent on or varying with the profits of a business does not itself make him a
partner in the business.
This appears to be a contradictory section and this apparent conflict was explained in the case
of:
Section 4 of the PA states by way of illustration that in particular, certain facts do not of
themselves constitute partnership namely:
1. The receipt of a debt by installments or otherwise out of accruing profits.
2. The receipt by a servant or agent of a share in the profit by way of remuneration.
Page
77
CASE
Davis vs Davis [1894] 1 Ch 393
North J observed that 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 is 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 on inference from the whole. It would therefore appear that the import of paragraph c in
sec 4 is that sharing of profits without more implies partnerships but if it is only one of several facts,
then all the facts must be considered together and so specific weight is to be given to the fact of profit
sharing.

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 a business.
5. The receipt of a share of the profits or interest on the loan, the rate of which varies with
the profit by a person who has advanced money by way of 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. See:
CASE
Re Forte Ex Parte Scofield [1897] 2 QB 455
There is dicta to suggest that where the benefit of this section is desired by the person who lends the
money then the contract must be in writing and if this dicta is correct it would mean that a person who
was never intended to be a partner but only a creditor may easily be regarded to be a partner in the
absences of a written contract and this notwithstanding that sec 4 opens by saying that the receipt of
profits itself is not conclusive in determining whether one is a partner or not. Therefore, the effect of sec
4 is not very clear.
In certain circumstances a person will be deemed to be a partner merely upon receipt of profits and
unless he rebuts the presumption by contrary evidence.
In general, it is reasonable to conclude that before one can tell whether or not parties to a transaction
are partners, one should probe into that real intention of the parties and ask oneself 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 venture.
CREATION OF PARTNERSHIPS
1. The Law prohibits the creation of a partnership consisting of more than 20 persons. See:
CASE
Fort Hall Bakery Supply Co vs. Wangoe [1959] EA 474
This was an organization of more than 40 people. The manager of this organization misappropriated
some money. An action was filed against him. The organization 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
Page
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 held bankrupt in respect of debts
legally enforceable against them.
In the event of a partnership between an adult and an infant, judgment on such debt will either
be against the partners alone or preferable against the firm but excluding the infant partners. In
78
2. A partnership may be illegal if it formed for a purpose forbidden by law or if it is contrary to

good morality or against public policy. The court will not enforce the rights against one another.
Purposes which are legal at the inception of the partnership may subsequently become illegal
e.g. by the passing of an Act of Parliament. In such cases the partnership is automatically
dissolved upon the passing of such an Act.
a judgment under any of these forms, a receiving order must be obtained against adult partners
and in subsequent bankruptcy proceedings, partnership assets will be given for distribution to
creditors.
On attaining the age of majority, an infant partner could either terminate the partnership in
order to exclude 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 for partnership and afterwards alleges
that he was insane at the time and did not know what he was doing, even if he succeeds on
proving the allegation, the contract is binding 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 for entry 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.
The document containing the terms of partnership is called the partnership deed or the articles
of partnership.
Such a document is evidence that the parties will carry on business on the terms stated thereof.
Some of the matters provided for in the partnership agreement include:
a. The name of the firm
b. The nature of the business
c. The place of business
The nature of partnership business should be stated because it is that business and that 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.
The rule is now embodied in Section 30[I] of the PA which enables any partner to terminate the
partnership at any time by notice to the others if no fixed period has been agreed upon for its
duration.
Page
Retirement from partnership at will.

30. (1) Where no fixed term has been agreed upon for the duration of the partnership, any partner may
determine the partnership at any time on giving reasonable notice of his intention so to do to all the
other partners.
(2) Where the partnership has originally been constituted by deed, a notice in writing, signed by the
partner giving it, shall be sufficient for this purpose.
79

But if there should be a provision that the partnership can only be terminated by mutual
agreement then such provisions will displace the general rule and the partnership cannot be
terminated at the will of a single party.
Moreover under section 31 of the 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 the term so far as it is inconsistent
with the incidents of the partnership will.
Where partnership for a term is continued over, continuance on old terms presumed
31.(1) Where a partnership entered into for a fixed term is continued after the term has expired, and
without any express new agreement, the rights and duties of the partners remain the same as they were
at the expiration of the term, so far as is consistent with the incidents of a partnership at will.
(2) A Continuance of the business by the partners or such of them as habitually acted therein during the
term without any settlement or liquidation of the partnership affairs is presumed to be a continuance of
the partnership.
The only exception to this principle is that where a partnership is formed to carry out some work
or some specific project, then the partnership is presumed to last until the completion of that
undertaking which is the 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 provides that the name under which the business is to be carried on is called
the firm name.
Meaning of "firm".
6. Persons who have entered into partnership with one another are, for the purposes of this Act, called
collectively a firm, and the name under which their business is carried on is called the firm-name.
CASE
Ewing vs Buttercup Margarine Co. Ltd [1917] 2 Ch 1
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
80
Here partners may trade under any name they please, whether it is a combination of their own
several names or a name which is merely descriptive of their business so long as they do not
fraudulently imply that their business is identical with some other company business.
Where the firm name does not consist of the true name of all the partners then it must be
registered under the Registration of Business Names Act.
The principle that a sole trader may carry on business under his own name or else under a fancy
name, applies equally to partnerships and the partners may adopt any name not calculated to
deceive either by diverting customers from other business or causing confusion between the
two businesses e.g. by suggesting that their business is an extension, branch or agency or
otherwise connected with the old business. See:
Page

complained promptly and sought an injunction to restrain the defendant form carrying on a business
under the name of Buttercup Margarine Co. Ltd. He argued that such a name would likely cause
confusion and serious injury to his business.
HELD: 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
business was a branch of or connected with the plaintiffs business. An injunction was therefore granted.
Where the intention of the parties is therefore expressly to deceive the court will restrain 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. See:
CASE
Croft vs Day [1843] 7 Bear 84
In 1801, Charles Day and one Martin entered into partnership as manufacturers of a substance called
blacking for a period of 21 years. They carried on their business at 97 High Holborn. In 1808 Martin
transferred his interest to Day who was given liberty to use Martins 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 testators nephew obtained the
authority of somebody else called Martin to use his name in business. The defendant thereupon set up a
business for the manufacture of blacking at 90 Holborn Hill.
They sold blacking in similar bottles to those used by the earlier firm of Day and Martin and those
used by Days executors.
HELD: 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 over blacking manufacture
honestly and fairly and had a right to use of his own name and although the court could not do anything
to bar him from the use of that or any other name calculated to benefit himself in an honest manner
nevertheless he must be prevented from using his name in such a way as to deceive or defraud the
public and thereby obtain for himself at the expense of the plaintiff an undue or unfair advantage.
CASE
North Cheshire and Manchester Brewery Co. Ltd vs Manchester Brewery Co. Ltd [1899] AC 83
The Manchester Brewery Co. had carried on business under that name for about eight 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 and
Manchester Brewery Co. Ltd.
81
The fact of a new trader carrying on a business in the name of an old trader is not in itself
unlawful unless the new trader is doing so for fraudulent purposes 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 an older trader, then the new trader will be estopped
from using that name which is likely to cause confusion. See:
Page

The respondent objected to 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 was likely to be deceived that the two
companies had been amalgamated and place their orders with the new company causing injury to the
old company. An injunction was granted against the appellants.
CASE
Thomas Turton and Sons vs. John Turton and Sons [1899] 2 ChD128
It was held that there was no possibility of confusion in these 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.
NOTE: 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.
But the firm name may be used in litigation so that the parties may be sued in that name or they
may sue in that name.
RELATION OF PARTNERS TO THIRD PARTIES

The liability of partners to third parties is governed by the law of Agency. Generally every
partner is an agent of the firm and also of each of his co-partners for the purpose of the
business of 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.
This is embodied in Section 7 of the PA.

Thus, in order to bind the firm a partner must have had actual authority to do 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 gives
every agent for the purpose of doing all acts which are necessary/proper to the carrying on of
the principals business in the manner usual in businesses of a similar nature. This general
authority is the ostensible authority.
In many businesses those acts which are usual are not prohibited in which case the actual
authority and the ostensible and apparent authority are co-extensive.
In some other businesses, it is usual to find some provisions in the Article of partnerships
prohibiting some partners from doing certain acts.
Page
82
Power to partner to bind the firm.

7. Every partner is an agent of the firm and his other partners for the purpose of the business of the
partnership; and the acts of every partner who does any act for carrying on in the usual way business of
the kind carried on by the firm of which he is a member bind the firm and his partners, unless the
partner so acting has in fact no authority to act for the firm in the particular matter, and the person with
whom he is dealing either knows that he has no authority or does not know or believe him to be a
partner.

Such is particularly the position where there are senior and junior partners.
Here the term junior partner includes those under 18 years and also those who have recently
joined the firm e.g. it is quite usual to find an article prohibiting a partner from buying/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 the third party knew of the prohibition.
If the third party knew he was dealing with a partner who had no authority then the firm can
not be bound See Section 10 of the PA.
Effect of notice that firm will not be bound by acts of partner,

10. If it has been agreed between the partners that any restriction shall be placed on the power of any
one or more of them to bind the firm, no act done in contravention of the agreement is binding on the
firm with respect to persons having notice of the agreement.
If a dispute arises as to whether the firm is bound by the acts of a party, then it must be
ascertained whether the act in question is one which in the absence of notice to the contrary
the third person will be justified in regarding it as being within the ostensible/apparent
authority of each of the parties and if the question is answered in the affirmative then the lack
of actual authority is immaterial.
CASE
Watten vs. Fenwick (1893) 1 QB 346
Here the defendants who were a firm of brewers were also the owners of the business of a pub for
which they appointed a manager to run. The license was always taken out in the name of the manager
whose name also appeared on the door. By agreement between the defendants and their manager, the
manager was forbidden from purchasing certain articles for the purpose of the business. Such acts were
to be supplied solely by the defendants. In contravention of these instructions, the manager ordered the
articles from the plaintiff for use by the business. The manager did not pay for them therefore the action
was filed against the defendants for the recovery of the price thereof.
Held that the principal is liable for all the acts of the agent which are within the authority usually
conferred in an agent of that character and not withstanding limitations put on that authority as
between the principal and the agent.
Also an undisclosed principal is liable for all the acts of the agent even those in excess of the
agents authority. This also applies in the area of partnership.
For a firm to be bound by the acts of the party, three conditions must be satisfied.
The act must be done in relation to the partnership business
It must be an act for carrying on business in the usual way
The act must be done by the party acting as a partner and not as a private individual
Page
1.
2.
3.
83

LIABILITY IN TORT
A firm is liable for torts committed against third parties by any of the partners in the course 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.
Therefore, with regards to debts and other contractual obligations the plaintiff can bring only
one action but in tort he may file separate action against each party.
Duration of liability
Liability lasts from the time one becomes a partner until resolutions 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.
This principle 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 of the P.A. 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 here does not include carelessness in allowing oneself to
be represented.
Persons liable by "holding out."
18. Any 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 any such representation, given credit to the firm, whether the representation has or
has not been made or communicated to the person so giving credit by or with the knowledge of the
apparent partner making the representation or suffering it to be made:
Provided that where, after a partner's death, the partnership business is continued by the old firmname, the continued use of that name or of the deceased partner's name as part thereof shall not of
itself make his executors or administrators, estate or effects liable for any partnership debts contracted
after his death.
CASE
Tower Cabinet Co. Ltd vs Ingram (1949) 2 K.B. 397
In 1946, Christman and Ingram entered into a partnership and carried on the business of household
furniture under the name Merrys. The partnership was dissolved in April 1947 but Christman continued
84
Sec 40 of the P.A 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 real 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 any dealings with the firm before the date of the change so advertised.
See
Page

to carry out business under the same name. In 1948 Tower Co Ltd which had not previously dealt with
Merrys received an order to supply Merrys some furniture. The price for the furniture was never paid
and the company obtained judgment against Merrys. It thereafter sought to enforce the judgment
against Ingram.
The only knowledge the company had of Ingram was that his name appeared in some old headed note
paper used by Christman without Ingrams authority in confirming an order for the furniture and which
Ingram forgot to destroy before leaving the firm.
Qn: Did Ingram knowingly suffer himself to be held out as a partner?
Held under sec 18 P.A. Ingram was not liable as he had not knowingly suffered himself to be
represented as a partner. It thus appears that there should be conscious knowledge that a person is
being held out before being held as a partner. Negligence per se is not adequate to hold him liable.
RELATIONS OF PARTNERS AMONG 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 are as such as may be
defined in the P.A.
However, no matter what the terms of the agreement may be or even in the absence of any
agreement, theres one element which the law implies in every partnership i.e. the element of
utmost good faith. Every partner is under a duty to observe utmost fairness of good faith
towards his co-partners.
The fundamental basis of partnership is that they are founded on mutual trust and confidence.
Where a person reposes trust and confidence in another; equity insists that such trust and
confidence shall not be abused.
It is not clear whether it is open to the partners to exclude this principle but it would 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 cant e.g. expel a partner if their real intention is to force the sale of that partners interest
on un-favorable terms.
But if there was a blatant breach of the articles such provision would justify the expulsion of the
offending partner even without preliminary warning.
See
Page
The plaintiff as a director in an American company of some other dental surgeons was a party to the
publications by that company which amounted to self-puffing advertisements and which were a
disparagement of other dentists and their mode of operations. Among other things they alleged that
only their instruments were always sterilized before being used and that theyd engaged a trained lady
85
CASE
Clifford vs. Timms (1907) 2 Ch.36
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 others should be at liberty to give notice in
writing terminating the partnership.

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 and could not therefore terminate the
partnership.
Held this publication 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 a firm for any commission on any sale/purchase on the
firms 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. See Sections 33 and 34 of the P.A.
Accountability of partners for private profits.

33. (1) Every partner must account to the firm for any benefit derived by him without the consent of the
other partners from any transaction concerning the partnership, or from any use by him of the
partnership property, name or business connexion.
Page
Section 28 of the P.A. lays down rules for determining the interests of partners in the
partnership property. 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/implied between the partners. In many
partnerships it is common practice to find an article authorizing each working partner to take a
salary as a manager in addition to his own share of profits.
Since such a salary must be paid before profits are shared it follows that the working partners
end up receiving more than the sleeping ones.
As an incident of management, it is only proper that each partner should have access to the
books of account.
86
(2) This section applies also to transactions undertaken after a partnership has been dissolved by the
death of a partner and before the affairs thereof have been completely wound up, either by any
surviving partner or by the representatives of the deceased partner.
Duty of partner not to compete with firm.
34. If a partner without the consent of the other partners carries on any business of the same nature as
and competing with that of the firm, he must account for and pay over to the firm all profits made by
him in that business.

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 they are more than one and every partner
has a right to access and inspect those books and make copies of any.

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 applies in the absence of
an agreement to the contrary between the partners.
If a partner makes any actual payment/advance for the purposes of the partnership business, he
is entitled to business at the rate of 6% p.a. as 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, 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 of importance particularly as between the partners themselves or between the
creditors of the firm and the creditors of individual person(s) taking a deceased partners real
estate and those taking personal estate.
For instance, partnership business may be carried on in a building owned by one of the partners.
Is this building part of partnership property?
The principle in law is that whether property is or is not partnership property depends on the
agreement express or implied between the partners.
Page
87
Rules as to interests and duties of partners.

28. The interests of partners in the partnership property and their rights and duties in relation to the
partnership shall be determined, subject to any agreement express or implied between the partners, by
the following rules(a) all the partners are entitled to share equally in the capital and profits of the business and must
contribute equally towards the losses whether of capital or otherwise sustained by the firm;
(b) the firm must indemnify every partner in respect of payments made and personal liabilities
incurred by himi.
in the ordinary and proper conduct of the business of the firm;
ii.
or in or about anything necessarily done for the preservation of the business or
property of the firm;
(c) a partner making, for the purpose of the partnership, any actual payment or advance beyond
the amount of capital which he has agreed to subscribe is entitled to interest at the rate of six
per centum per annum from the date of the payment or advance;
(d) a partner is not entitled, before the ascertainment of profits, to interest on the capital
subscribed by him;
(e) every partner may take part in the management of the partnership business;
(f) no partner shall be entitled to remuneration for acting in the partnership business;
(g) no person may be introduced as a partner without the consent of all existing partners;
(h) any difference arising as to ordinary matters connected with the partnership business may be
decided by a majority of the partners, but no change may be made in the nature of the
partnership business without the consent of all existing partners;
(i) the partnership books are to be kept at the place of business of the partnership (or the principal
place, if there is more than one) and every partner may, at all reasonable times, have access to
and inspect and copy any of them.

ASSIGNMENT OF PARTNERSHIP INTEREST
Without the consent of all the partners, a partner cant transfer his share in the partnership so
as to place another person in his shoes with all the rights of a partner.
This may be contrasted with section 75 of Company Act where a companys shares are freely
transferable.
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 functions of a partner.
The only right such third party is entitled to; is to receive the share of the profits to which the
assigning partner would otherwise be entitled to.
However, on the application by a judgment-creditor of one of the persons, the courts may under
Section 27 of the P.A. make an order charging that partners interest in the assets and profits
with payment of the judgment debt and for that purpose the court may appoint a receiver of
that partners share of the profits.
Execution against partnership property
27. (1) Execution of a decree shall not issue against any partnership property except on a judgment
against the firm.
(2) The court may, on the application by summons of any judgment creditor of a partner, make an order
charging that partner's interest in the partnership property and profits with payment of the amount of
the judgment debt and interest thereon, and may by the same or a subsequent order appoint a receiver
of that partner's share of profits (whether already declared or accruing), and of any other money which
may be coming to him in respect of the partnership, and direct all accounts and inquiries, and give all
other orders and directions which might have been directed or given if the charge had been made in
favour of the Judgment creditor by the partner, or which the circumstances of the case may require.
(3) The other partner or partners shall be at liberty at any time to redeem the interest charged, or, in
case of a sale being directed, to purchase the same.
Under section 37 of the P.A., this is one of the grounds for which the partnership may be
dissolved by an order of the court.
Dissolution by bankruptcy, death or charge.

37. (1) Subject to any agreement between the partners, every partnership is dissolved as regards all the
partners by the death or bankruptcy of any partner.
Page
DISSOLUTION OF PARTNERSHIP
A partnership may be brought to an end either by death of one or more of the partners or by
dissolution.
88
(2) A partnership may, at the option of the other partners, be dissolved if any partner suffers his share of
the partnership property to be charged under this Act for his separate debt.

Dissolution may be effected by agreement between the partners themselves or by an order of
the court.
The circumstances in which a partnership may be dissolved without any reference to the court
are set out in Section 36-38 of the P.A.
Here subject to any agreement between the partners:
1. If a partnership is 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/undertaking
3. Where it is entered into for an undefined period, then it is brought to an end by any partner
giving notice to in writing to the others for his intention to dissolve partnership. No specific
period of notice is required.
Dissolution by expiration or notice.

36. (1) Subject to any agreement between the partners, a partnership is dissolved
(a) if entered into for a fixed term, by the expiration of that term;
(b) if entered into for a single adventure or undertaking, by the termination of that adventure or
undertaking:
(c) if entered into for an undefined time, by any partner giving notice to the other or others of his
intention to dissolve the partnership.
(2) In the last-mentioned case, the partnership is dissolved as from the date mentioned in the notice as
the date of dissolution, or, if no date is so mentioned, as from the date of the communication of the
notice.
Dissolution by bankruptcy, death or charge.
37. (1) Subject to any agreement between the partners, every partnership is dissolved as regards all the
partners by the death or bankruptcy of any partner.

Page
A partnership is always dissolved from the date mentioned on notice as the date of dissolution
and if there is no date mentioned, the partnership is dissolved on the date of receipt of notice.
Once notice to dissolve is received, it cant be withdrawn except with the consent of all the
parties.
Under Section 37 of the P.A. subject to any agreement between the partners, every partnership
is dissolved by the death or bankruptcy of any of them.
89
(2) A partnership may, at the option of the other partners, be dissolved if any partner suffers his share of
the partnership property to be charged under this Act for his separate debt.
Dissolution by illegality of partnership.
38. 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.

It is possible that the death of a partner may not lead to dissolution if the articles provide for
continuation by survivors either alone or in partnership with the representatives of the
deceased partner. This also applies in the case of bankruptcy of a partner.
A partnership is in any 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 a firm to carry it on in
partnership.
DISSOLUTION BY COURT
This is contained under Section 39 of the P.A
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 resulted to in the following
cases:
1. When a partner is adjudged a lunatic or is shown to the satisfaction of the court to be of
permanently unsound mind. In either of these events, the application may be made on behalf of
the lunatic by his guardian ad litem.
2. When a partner other than the suing partners 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 willfully or persistently commits a breach of the
partnership agreement or otherwise conducts himself in matters other than those of the
business in such a way that it isnt reasonably practicable for the other partners to carry on the
business with him.
5. When the business of the partnership can only be carried on at a loss
6. Whenever in any case circumstance have arisen which in the opinion of the court; renders it just
and equitable that the partnership be dissolved.
Dissolution by the court.
Page
(a) when a partner is adjudged a lunatic, or is shown to the satisfaction of the court to be of
permanently unsound mind, in either of which cases the application may be made as well on
behalf of that partner by his guardian ad litem or next friend or person having title to intervene
as by any other partner;
(b) when a partner, other than the partner suing, becomes in any other way permanently incapable
of performing his part of the partnership contract;
(c) when a partner, other than the partner suing, has been guilty of such conduct as, in the opinion
of the court, regard being had to the nature of the business, is calculated to affect prejudicially
the carrying on of the business;
(d) when a partner, other than the partner suing, willfully or persistently commits a breach of the
partnership agreement, or otherwise so conducts himself in matters relating to the partnership
business that it is not reasonably practicable for the other partner or partners to carry on the
business in partnership with him;
(e) when the business of the partnership can only be carried on at a loss;
(f) whenever in any case circumstances have arisen which, in the opinion of the court, render it just
90
39. On application by a partner, the court may decree dissolution of the partnership in any of the
following cases

and equitable that the partnership be dissolved.
Under Section 41 of the P.A. on dissolution or retirement of a partner, any partner may publicly
advertise this and may also require the other partners to assist in any other acts for dissolution.
41. On the dissolution of a partnership or retirement of a partner, any partner may publicly notify the
same and may require the other partner or partners to concur for that purpose in all necessary or
proper acts. if any, which cannot be done without his or their concurrence.
Under section 42 of the PA After dissolution, the authority of any partner to bind the
partnership and the other rights and obligations of the partners continue as far as may be
necessary to wind up the affairs of the partnership and to complete any transactions begun but
unfinished at the time of dissolution.
Continuing authority of partners for purposes of winding up.

42. After the dissolution of a partnership, the authority for each partner to bind the firm, and the other
rights and obligations of the partners, continue notwithstanding, the dissolution, so far as may be
necessary to wind up the affairs of the partnership, and to complete transactions begun but unfinished
at the time of the dissolution but not otherwise:
Provided that the firm is in no case bound by the acts of a partner who has become bankrupt; but this
proviso does not affect the liability of any person who has, after the bankruptcy, represented himself or
knowingly suffered himself to be represented as a partner of the bankrupt.
GOODWILL
Goodwill may be defined as the benefit or advantage which a business has in its connection
with the 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
establishment and a new business at its start.
Goodwill is a partnership asset and like other assets, on dissolution of the firm, it must be sold
so that the proceeds may be applied towards the firms debts and liabilities.
Page
3. Definition and constitution.

1) Limited partnerships may be formed in the manner and subject to the conditions provided by this Act.
2) A limited partnership shall not consist in any case of more than twenty persons, and must consist of one or more
91
LIMITED PARTNERSHIP
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.See Section 3 of the
Limited Partnership Act Cap 30 Laws of Kenya
A general partner is liable for all the debts and obligations of the firm. The limited partners
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 authorized by its Memorandum of
Association.
3)
4)
1.
2.
3.
4.
5.
6.
7.
persons called general partners, who shall be liable for all debts and obligations of the firm, and one or more persons
to be called limited partners, who shall at the time of entering into the partnership contribute thereto a sum or sums
as capital or property valued at a stated amount, and who shall not be liable for the debts or obligations of the firm
beyond the amount so contributed.
A limited partner shall not, during the continuance of the partnership, either directly or indirectly draw out or receive
back any part of his contribution, and if he does so draw out or receive back any such part, shall be liable for the debts
and obligations of the firm up to the amount so drawn out or received back.
A body corporate may be a limited partner.
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 the delivery to the registrar of companies a statement signed by the
partners containing the following particulars.
The firm name
The general nature of the business
The principal place of business
The full names of each of the partners
The terms if any for which the partnership is entered into and the date of commencement
A statement that the partnership is limited and the description of each limited partner as such
The sum contributed by each limited partner and whether such a sum is paid in cash or by
which method.
4. Registration required.
Every limited partnership must be registered as such in accordance with the provisions of this Act and of any rules thereunder,
or in default thereof it shall be deemed to be a general partnership, and every limited partner shall be deemed to be a general
partner.
1. Under this section a limited partner may not take part in the management of the partnership
business and he has no power to bind the firm. If he takes part in the management, he thereby
ceases to enjoy limited partnership liability and becomes liable for all. However, the limited
partner may also always inspect the books of account of the firm and also examine the state
and prospects of the partnership business.
2. Unless specifically provided in the partnership agreement, a limited partnership cant be
dissolved by the death or bankruptcy of a limited partner. The lunacy of a limited partner is not
a ground for dissolution by the court.
3. In the event of dissolution of a limited partnership, its affairs should be wound up by the
general partners unless the court otherwise orders
4. Subject to any agreement between the partners any differences arising as to ordinary matters
connected to the partnership may be decided by a majority of the general partners.
5. With the consent of 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
6. The general partners are not entitled to dissolve the partnership by reason of any limited
partner suffering to be charged for a separate debt. It should also be noted that a person may
92
If a proposed limited partnership is not registered it is deemed to be an ordinary partnership

and any proposed limited partner will be regarded as a general partner.
Generally, the common law and rules of equity applicable to partnerships also apply to limited
partnerships subject to modifications set out in Section 5 of the Ltd Partnership Act.
Page

be introduced as a partner without the consent of the existing limited partner. A limited
partner may not dissolve a partnership by notice.
Page
93
5. Modifications of general law.

1) A limited partner shall not take part in the management of the partnership business, and shall not have power to bind
the firm, but he may by himself or his agent at any time inspect the books of the firm and examine into the state and
prospects of the partnership business, and may advise with the partners thereon; and if a limited partner takes part in
the management of the partnership business he shall be liable for all debts and obligations of the firm incurred while
he so takes part in the management as though he were a general partner.
2) A limited partnership shall not unless specifically provided in the partnership agreement be dissolved by the death or
bankruptcy of a limited partner, and the lunacy of a limited partner shall not be a ground for dissolution of the
partnership by the court unless the lunatics share cannot be otherwise ascertained and realized.
3) In the event of the dissolution of a limited partnership, its affairs shall be wound up by the general partners unless
the court otherwise orders.
4) Subject to any agreement expressed or implied between the partners
a) any difference arising as to ordinary matters connected with the partnership business may be decided by a
majority of the general partners;
b) a limited partner may, with the consent of the general partners, assign his share in the partnership, and
upon such an assignment the assignee shall become a limited partner with all the rights of the assignor;
c) the other partners shall not be entitled to dissolve the partnership by reason of any limited partner
suffering his share to be charged for his separate debt;
d) a person may be introduced as a partner without the consent of the existing limited partners;
e) a limited partner shall not be entitled to dissolve the partnership by notice.
Page
94
SAMPLE PATNERSHIP DEED

THE LIMITED LIABILITY PARTNERSHIP ACT, 2011 AND ITS IMPLICATIONS AS AN ALTERNATIVE VEHICLE
FOR CONDUCT OF BUSINESS
INTRODUCTION
The Limited Liability Partnership Act, 2011 was assented into law and commenced operation
on 16th March, 2012. The Act repeals Limited Partnerships Act, Cap 30 of the Laws of Kenya,
which previously governed the formation, management and regulation of limited partnerships.
IMPLICATIONS OF THE LIMITED LIABILITY PARTNERSHIPS ACT

Registration of an LLP
An LLP may be registered reserving the proposed name. The name is reserved for a period of
two months from the date on which the application for reservation was lodged with the
registrar.
Thereafter, two or more persons desirous of conducting business for profit [therefore, LLPs
cannot be registered with only one proprietor or be used for charitable purposes] under the
reserved name may lodge the prescribed form with the registrar. The statement should contain:
1. name of that LLP (which name should not be: prohibited by any law, undesirable, identical to
that of any other LLP corporation or business name, or identical to a name that is being reserved
under the LLP Act, the Business Names Act or Companies Act);
2. nature of the proposed business;
3. the proposed registered office;
4. the name, identity document (if any), nationality, and usual place of residence of each person
who will be a partner of the partnership;
Page
a) the bodys corporate name;

b) the bodys place of incorporation or registration;
c) the bodys registration number (if any); and
d) the registered office of the body to which all communications may be addressed;
e) the name, identity document (if any), nationality and the usual place of residence of
each person who will be a manager of the partnership and, if any such person is a body
corporate:
f) the corporate name, place of incorporation or registration number (if any) of the body;
and
g) the registered office of the body to which all communications may be addressed; and
h) such other information concerning the proposed limited liability partnership as may be
prescribed by the regulations
i) The name of an LLP must end with the word LLP or its long form. The Act also
envisages change of name of the LLP as the partners may wish from time to time.
95
5. if any of the persons referred to in paragraph (d) is a body corporate:

Separate Legal Personality
The Act envisages that an LLP shall be a corporate entity with a legal personality separate and
distinct from its owners. The now repealed Cap 30 envisaged partnerships as separate from its
owners and therefore, under the former Act, the liability of the firm in the event of insolvency
could be settled from personal property of the proprietors. In LLPs registered under the Act, the
liabilities of LLP are payable out of the property of the LLP.
Perpetual Succession
A limited liability company also enjoys perpetual succession such that death or departure of a
partner doesnt affect the existence of the firm. This is advantageous especially for professional
services firms because a change in the partners of the LLP does not affect the existence, rights or
obligations of the LLP.
Powers of an LLP
As an incorporated body corporate, an LLP may in its own name and seal: sue and be sued,
and hold and dispose of property.
Power to Form an LLP

Natural persons and body corporates (except trade unions) may form an LLP.
Liability in an LLP
The liability of any partner in an LLP can only arise by contract or tort, and may not arise solely
for the reason of one being a partner in an LLP. Accordingly, partners in an LLP will agree on the
degree of their liability in respect of any matter.
The Act doesnt waive liability for tortuous acts arising from individual partners action or
omission. By extension, one partner in an LLP setup is not liable for wrongful acts/omissions of
another partner within the LLP.
However, an LLP would be responsible for a wrongful act or omission committed by a partner to
another person (other than a partner of the LLP) in the course of the business of the LLP or with
its authority a person.
Agency Relationship between Partners and LLP
Regulation of Partners Relation
96
Partners of an LLP exercised are agents of an LLP. Such agency is however repudiatable in
circumstances where: (a) the partner in question acted without authority of the LLP; or the
person dealing with the partner knows that that partner has no authority but proceeds to
transacts with such partner.
The Act also obliges LLPs to formally notify the Registrar of any change in partnership of the LLP
to avert adverse claims.
Page

Under the LLP Act, the relationship of the partners themselves and the relationship between
the partners and the LLP are governed by the Limited Liability Partnership Agreement. In the
absence of such an agreement, the First Schedule of Act which contains default provisions
regarding governance/management of would apply. Decisions of the LLP are to be through
resolutions passed with the requisite quorum as may be stipulated in an LLP agreement.
COMMENTARIES

The Limited Liability Partnership Act 2011 came into force on 16 March 2012.
On 16 March 2012 the new Limited Liability Partnerships Act, 2011 (LLP Act) took effect as law
in Kenya. The Act introduces a new form of business association known as a limited liability
partnership (LLP). The LLP combines some of the features of a traditional partnership with the
limited liability benefits more typically associated with a company.
Some of the important features of an LLP include:
a) It is established through registration under the Act;
b) It must have at least 2 partners and 1 manager. The partners may be natural persons or
a bodies corporate. The manager must be a natural person;
c) An LLP is a separate legal entity from its partners. In this respect, it is similar to a
company, and different from a typical partnership;
d) Partners of an LLP are not liable for the firms debts and obligations nor are they liable
for each others debts and obligations. This is not the case with general partnerships;
e) However, individual partners in an LLP are liable for their own wrongful acts or
omissions. The LLP is also liable for a partners wrongful acts or omissions, to the same
extent as that partner, where the partner is engaging in the LLPs business or acting with
its authority.
The LLP structure provides a potentially useful alternative business vehicle to the private
company. It has the benefit, at least at present, of being less regulated than a private company.
From a tax perspective, it may prove more effective than a company because currently
partnership income is taxed in the hands of the individual partners and not at the firm level,
whereas companies are taxed at the entity level and any dividends also taxed in the hands of
shareholders.
It remains to be seen whether the Government will propose taxing the LLP at firm level given its
separate legal personality.
In some other jurisdictions that have introduced LLPs, such as the UK, India and the USA, the LLP
has generally been treated as a pass through vehicle for tax purposes, thereby increasing its
attractiveness as a business vehicle. Provided that Kenyan income tax laws are not amended to
impose a tax on the LLP at firm level, then the LLP will also provide a superior alternative
business vehicle to a general partnership.
This is because the LLP will provide the same pass through taxation benefit as a general
partnership, but in addition, offer limited liability to the partners akin to that offered by a
company to its shareholders.
Page

97
a) COULSON HARNEY

Another potential benefit of an LLP over a general partnership is that the number of partners is
not restricted.
The Companies Act restricts the number of partners in a general partnership to no more than
20, but creates a carve-out for partnerships formed in pursuance of some other Act. The LLP,
being formed by way of registration under the LLP Act, falls within this carve-out.
An unusual feature of the LLP Act is that it prescribes mechanisms to convert existing
partnerships and private companies into LLPs. This appears to suggest that Government is
interested in encouraging the use of this type of business formation, particularly for small to
medium size enterprises, which would typically use the other types of business formation.
There is still uncertainty regarding how the LLP Act will be applied in practice due to the fact
that it is still a very new piece of legislation and, as yet, no subsidiary rules and regulations have
been published to provide guidance in this respect.
Currently, the Registrar of Companies, which is also the Registrar of LLPs has not as yet
developed administrative forms to facilitate the registration process and this may cause some
delay in establishing the first LLPs.
We shall continue to update our clients on further developments regarding what promises to be
a revolutionary new type of business vehicle in Kenya.
Cessation from Partnership

Partners in an LLP have three options for exiting the Firm, namely:
a) In accordance with the provisions of an LLP agreement;
b) issuances of a 90 days notice to the other partners of the LLP of the intention to resign;
or
c) upon death of that partner or on dissolution of the partnership.
Resignation or death terminates all management rights of such a partner.
The Act also protects the interest of resigning partner or his/her beneficiaries (on death).
Accordingly, on resignation or upon death, that partner or his personal representatives/assigns
is entitled to receive from the LLP an amount:
i.
equal to the persons capital contribution to the LLP and the persons right to share in
the accumulated profits of the LLP after the deduction of losses of the limited liability
partnership; and
ii.
determined as at the date the person ceased to be a partner.

Page
An LLP Agreement may restrict the application of provision of the Act regarding management of
bankruptcy of partners.
Generally however, bankruptcy of a partner doesnt cause such a partner ceasing being a
partner in the LLP, although such a partner may not participate in the management of the Firm.
The above notwithstanding, an official receiver or a trustee of the estate of the bankrupt
partner is entitled to receive distributions of profits from the LLP that the bankrupt partner is
entitled to receive under the LLP agreement.
98
LLPs, LLP Partners and Bankruptcy

Assignment Rights

The Act is novel in that a partner in an LLP may, unless otherwise provided under an LLP
Agreement, assign his rights to receive distribution from the partnership.
Whereas the assignment terminate the assigning partners rights in the Firm, it entitles the
assignee the right to participate in the management of the Firm.
By reason of the assignment, anyone may become a member of the LLP and participating in its
management affairs. Accordingly, this is an area that ideally should be well considered when
drafting an LLP Agreement.
There appears to be an inconsistency between section 15 (2) and Section 15 (3) (b), as the
former limits assignee's rights to only receipt of distributions from the partnership which the
assignor would otherwise have been entitled to receive, while the the latter entitles an assignee
to participate in the management of the partnership.
Accordingly, exclusion of right of assignment by way of a LLP Agreement as envisaged under
Section 15 (1) will prove critical for most LLPs.
Conversion of Partnerships and Limited Liability Companies to LLPs

The Act is novel in Kenya as it allows conversion of partnerships and limited liability companies
to LLPs.
However, such conversion does not terminate rights and obligations which subsisted
immediately before the conversion, which rights and obligations are transferred by operation of
law to the new LLP.
Requirement for a Manager

An LLP must have a manager who must be a natural person, and whose particulars must be
lodged with the registrar in the prescribed form.
The role of a manager is to ensure that the LLP lodges annual declaration of solvency or
insolvency, file changes in registered office of the LLP and ensure that invoices or other
document issued relating to the partnership business bears
a) the name and registration number of the partnership; and
b) a statement that it is registered with limited liability.
LLPs have several advantages over other forms of vehicles for conduct of business. LLPs are a
cross between a partnership and company structure.
They have principally been introduced to afford professional services firms (PSFs) which mostly
trade as partnerships (accountants, lawyers, surveyors etc) the opportunity to benefit from
limited liability.
They provide partners in PSFs with the benefits of limited liability, and accordingly protecting
their personal assets from any potential business creditors as is the case with limited liability
companies.
While Limited Liability Companies (LLCs) can have multiple members (upto 50), they are not as
good at attracting investors as LLPs.
Page
99
CONCLUSION

This is because, as highlighted above, LLP structure isolates each partner when it comes to
claims, for instance, of negligence.
In a LLP, unlike an LLC, a claimant may only direct his negligence or malpractice claims toward
the negligent partner, and thus protecting the partnership and the other partners.
For tax advantage, LLPs are often used to save on tax obligations and therefor increase
shareholder value.
Accordingly, we expect that a majority of professional service firms will henceforth be registered
as LLPs rather than business names under the Registration of Business Names Act (Cap 499 of
the Laws of Kenya) or limited liability companies under the Companies Act (Cap 486 of the Laws
of Kenya) or converted to LLPs as envisaged under the LLP Act.
b) CAPITA REGISTRARS
On 16 March 2012, the new Limited Liability Partnerships Act, 2011 (LLP Act) took effect as
law in Kenya. The Regulations only requisite to facilitate registration were later published in
September the same year paving way for a new form of business association known as a limited
liability partnership (LLP). The LLPcombines some of the features of a traditional partnership
with the Limited Liability benefits more typically hitherto only associated with Companies.
They were made available to combine the flexibility of partnerships with the protection
of Limited Liability. Although still not widely used, many professional partnerships have chosen
to convert to LLP.
It is not required that an LLP creates a constitution/Memorandum or Articles of Association.
However, the Act provides that the Partners to an LLP would execute a Limited Liability
Partnership Agreement to set out the agreement between the members. The LLP does not file
any form of constitution. In this agreement, the members can agree on profit sharing, capital
contributions, roles/duties, management or other arrangements amongst themselves and
change those arrangements as often as they agree.
The tax rules for an LLP are the same as any ordinary partnership. The members are deemed
self-employed. Each partner will report their share of the profit on their personal tax return. The
individual partners will pay income tax on their profit share.
The LLP structure provides a potentially useful alternative business vehicle to the private
company. It has the benefit, at least at present, of being less regulated than a private company.
From a tax perspective, it may prove more effective than a company because currently
partnership income is taxed (at individual level) in the hands of the individual partners and not
at the firm level, whereas companies are taxed at the entity level and any dividends also taxed
in the hands of shareholders. It remains to be seen whether the Government would propose
taxing the LLP at firm level given its separate legal personality.
Provided that Kenyan income tax laws are not amended to impose a tax on the LLP at firm level,
then the LLP will also provide a superior alternative business vehicle to a general partnership.
This is because the LLP will provide the same pass through taxation benefit as a general
Page
100
LIMITED LIABILITY PARTNERSHIP ACT

partnership, but in addition, retain Limited Liability to the partners akin to that offered by a
Company to its shareholders.
Liability Protection
In general partnerships, each participant is personally responsible for the actions of the
company. This includes debts, liabilities and the wrongful acts of other partners. One advantage
of a limited liability partnership is the liability protection it affords. This type of partnership
structure protects individual partners from personal liability for negligent acts of other partners
or employees not under their direct control,. In addition, individual partners are not personally
responsible for company debts or other obligations. This is advantageous for an individual
partner when potential lawsuits or claims of negligence against the business are concerned.
Another potential benefit of an LLP over a general partnership is that the number of partners is
not restricted. The Companies Act restricts the number of partners in a general partnership to
no more than 20.
Limited liability partnerships offer participants flexibility in business ownership. Partners have
the authority to decide how they will individually contribute to business operations. Managerial
duties can be divided equally or separated based on the experience and qualifications of
individual partner. In addition, partners who have a financial interest in the Business can elect to
not have any authority over business decisions but still maintain ownership rights based on their
percentage interest in the Business.
Important Features
1. MEMBERSHIP: It must have at least 2 partners and 1 manager. The partners may be natural
persons or bodies corporate. However, the manager(s) must be a natural person.
2. BODY CORPORATE: An LLP is a separate legal entity from its partners. In this respect, it is
similar to a company, and different from a typical partnership. It thus can acquire/own/hold and
dispose of movable and immovable properties (including land) and can sue and be sued in its
own name.Whereas the Act establishing LLP is silent, it is believed that this Corporate
feature enables an LLP to create Securities for Loans and charge them like any other Companies.
3. LIABILITY: Partners of an LLP are not liable for the firms debts and obligationsnor are they
liable for each others debts and obligations. This is not the case with general
partnerships.However,individual partners in an LLP are liable for their own wrongful acts or
omissions. The LLP is also liable for a partners wrongful acts or omissions, to the same extent as
that partner, where the partner is engaging in the LLPs business or acting with its authority.
Page
101
4. PERPETUAL SUCCESSION: LLPs enjoy Perpetual Succession in that, in the event of death or exit
of any one or more Partners, the same does not affect the existence of the LLP.

How to Register a Limited Liability Partnership in Kenya
This is a new form of business association which came into law through the LLP act on 16 March
2012. The LLP combines some of the features of a traditional partnership with the limited
liability benefits more typically associated with a company. The following steps elaborate on
how to set up a limited liability partnership in Kenya.
STEPS
I.
NAME SEARCH
a) Submit a letter requesting reservation of your proposed name to the registrar of companies
b) Pay a fee of KES.100 and wait for 3 days.
c) Collect a letter approving reservation of the proposed name and a statement of particulars from
the Registrar of Companies.
II.
FILING A STATEMENT OF PARTICULARS WITH THE REGISTRAR OF COMPANIES
a) Submit to the registrar of companies a statement of particulars which has to be signed by all the
partners to be included in the partnership.
b) It ought to have;
i.
The name of that partnership
ii.
Nature of business
iii.
Proposed registered office
iv.
Personal particulars of aspiring partners
v.
Particulars of corporate if partners are corporate
vi.
Particulars of the would be manager or corporate
c) It takes 9-14days to process the statement at a fee of KES 10,000
d) ISSUING CERTIFICATE OF REGISTRATION
e) DRAFTING OF THE PARTNERSHIP AGREEMENT
a) Seek lawyers advice (optional) at a negotiated fee
b) It describes Mutual rights and duties between partners.
The long awaited Limited Liability Partnership Bill (Bill No.21 of 2011) was debated in Parliament
and passed on 25th October 2011. The Bill was subsequently assented to by the President on
11th November 2011 thus bringing the Limited Liability Partnership Act ((LLP Act) No.42 of 2011)
into law. This statute did not however, have a commencement date until one was gazetted in
March 2012. The LLP Act therefore came into operation on 16th March 2012 effectively
replacing the Limited Partnership Act of 1934.
The LLP Act presents numerous opportunities for parties intending to undertake ventures
jointly. From a legal perspective, the partners liability is limited to the extent of their
contribution into the partnership. Further, the Act makes an LLP a body corporate with
perpetual succession with a legal personality separate from that of its partners. This body
corporate status enables an LLP to: -
1. Sue and be sued in its own name,

Page
102
THE LIMITED LIABILITY PARTNERSHIP ACT

2. Hold and dispose of property in its own right, and
3. Do all other things that a body corporate is entitled to do.
Despite the body corporate status endowed on the LLP, it remains a partnership for accounting and tax
purposes. Tax is therefore assessed and paid at the partner level with the only tax obligation on the LLP
being to file an annual tax return.
In essence the LLP can thus be said to be a hybrid between a limited liability company and the
traditional partnership. This combination offers flexibility as well as a myriad of other benefits where it
is deemed suitable to use it. It is for these reasons, that we believe that the LLP should not be ignored
as a viable and efficient vehicle in structuring transactions.
DIFFERENCE BETWEEN LLP AND NORMAL PARTNERSHIP

LLPs are partnerships that enjoy unique benefits. They also have several advantages over
companies incorporated under the Companies Act. Currently the main business associations in
Kenya include sole proprietorships, partnerships, companies, societies, trusts and NGOs. An LLP
will be a new kind of business association.
It differs from the ordinary partnerships in that it accords the players a separate legal identity
and also gives the arrangement a corporate identity. With ordinary ones, the identity of the
partners and that of the business is not separate such that the owners trade and enter into
contracts in their names. With LLPs, trading will be done in the business name. The second
unique feature of an LLP is that they have a corporate identity meaning that just like companies
they will be able to hold property in their own names.
With the ordinary partnership, property is held in the names of the owners jointly. An LLP also
accords the partnership a perpetual succession and this means that it will continue to exist
despite the exit of old partners. The LLP is also capable of suing in its own name.
This new law is a win for partnerships that wish to convert into LLPs. A challenge that
partnerships face is the fact that at law there is no distinction between the business and its
owners. However with an LLP a clear distinction is made. Therefore past case law on separation
of legal identity between partners and their businesses would most certainly apply in the case of
an LLP. The privacy of individual partners is maintained when it comes to making investments
and holding property.
Where the property is jointly registered in the names of individuals when one partner exits or
another one is admitted, the process of correcting the title is cumbersome. Often this involves
property remains with the LLP.

It is easier for LLPs to secure borrowing as the guarantees come from the LLP itself and not the
Page
perpetual succession, whether there is a change in the partnership or not, the title of the
103
numerous filings which are costly and cumbersome. However with an LLP by virtue of the

individual partners. The law therefore reduces risk for investors.
Corporate identity means that the LLP can enter into contracts as a business without necessarily
involving the individual partners. For example, in the event of hiring employees, the contract
would be done between the LLP and the staff members and it remains liable to individuals
unlike in an ordinary partnership where all transactions are done in the name of the partners.
Another advantage with LLPs, is that they allow for the inclusion of body corporate as partners.
This would be quite useful where several businesses wish to form a business consortium for a
particular transaction. Then they can form an LLP with each member of the consortium taking
up a share as a partner. The complications of joint ventures are avoided with LLPs.
The proposed law provides that LLPS shall be formed by an agreement, with the requirements
being two or more persons. The two can be companies, two individuals or a company and an
individual which options are not available for ordinary partnerships.
The latter can only be formed by two or more persons. The LLPs also provide for a manager who
shall be in charge of operations.
Under the law, existing partnerships or existing companies can apply for conversion under the
Act. The benefits of an LLP over a company, is the ease of formation and of dissolving. These
make LLPs quite attractive for a specific term transaction.
Most professional bodies require experts to trade either as sole proprietorships or ordinary
partnerships.
It is hoped that most professional associations will allow qualifying members to convert into
LLPs due to their attractive features and also the ease of operations and management as
Page
104
compared to ordinary partnerships.

It will be easier for such professional businesses to hire staff, secure borrowing and generally
administer the business due to the fact that the identity of its owners and the business are
separate.

Cooperatives and Partnerships

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Cooperatives and Partnerships

Uploaded by

Copyright:

Available Formats

LBA II-CO-OPERATIVES AND PARTNERSHIPS-GPR 316