I started a food vendor business with a friend last year, and it was going well. We were to meet and set targets for this year, so I called him while I was upcountry but he didn’t pick my calls. I returned last week and found his house locked. I popped by the shop and, to my amazement, it is now a beauty shop. The new owner knows nothing about my business partner, . Neighbours say the shop was vacant for a week.
He is still not picking up my calls. My investment in the business was Sh100,000 cash. Everything, including the stock we bought before the festivities has vanished into thin air. Where do I start?
The most important question is whether a partnership agreement exists. This agreement outlines each partner's rights and responsibilities for investing in and managing the business.
A partnership agreement must address several key issues, the most important being the duty of good faith. According to Section 10(1) of the Partnership Act, every partner must always act honestly and fairly in all dealings with other partners. Section 10(2) explains that the duty of good faith requires partners to: (a) Keep each other (or their legal representatives) informed about all matters affecting the partnership: (b) disclose and share with the partnership any profits or benefits earned—without other partners’ consent—from partnership business, use of partnership property, the partnership name, or business connections; (c) account for any profits made from running a competing business without the other partners’ consent. Section 10(3) also requires all partners to exercise a duty of care toward each other and the partnership as a whole.
Another key principle under Section 17 of the Partnership Act is that a partnership is generally bound by its partners' actions, especially when those actions relate to the partnership’s core business as set out in the partnership deed.
However, there are clear exceptions: a partner cannot bind the partnership if they lack authority as specified in the partnership deed. If a third party knows that a partner lacks authority to act on behalf of the partnership, any agreement or transaction with that partner does not bind the partnership.
If a third party is uncertain about a partner’s authority or role in the partnership, and still transacts in the partnership’s name, the partnership is not bound by those actions. This principle protects both the partnership and third parties by clearly outlining when authority exists and when it does not.
Clear entry and exit procedures, as well as dispute-resolution mechanisms, are essential in any partnership agreement. When forming the partnership, partners should define the business’s core activities and shared values. They must also agree on non-negotiable terms—what cannot be compromised, changed, or modified. Additionally, it is important to specify the conditions under which these non-negotiable terms may be reviewed in the future.
Your situation indicates that a partner has breached the partnership agreement by disappearing and avoiding communication. This behaviour suggests possible dishonesty, despite the duty to act in good faith. Even if there are no formal documents, you may still have legal recourse. Article 22(1) allows you to petition the court based on partnership agreements, deeds, or evidence of a partnership by conduct.
If there is no written partnership agreement, you may need to address possible criminal aspects of your transactions. Section 313 of the Penal Code defines the crime of obtaining by false pretence—when someone intentionally deceives another to obtain money. In your case, this means your partner may have misrepresented facts to unlawfully obtain money from you.
