Theory of Limited Liability

Liability means the extent to which a person may be called upon to contribute to the assets of

the company in the event of winding up. In company law, the liability of members may be limited

or unlimited. If limited it may be limited by shares or by guarantee as shall be explained later in

this chapter.

We then pay attention to the main differences between a company and a partnership. The basic

differences between registered companies and partnerships are as follows:

(a) Formation

Registration is the legal pre-requisite for the formation of a registered company: Fort

Hall Bakery Supply Co v Wangoe (1).

The Partnership Act does not prescribe registration as a condition precedent to

partnership formation. A partnership may therefore be formed informally or, if the

partners deem it prudent, in writing under a Partnership Deed or Articles.

(b) Legal Status

A registered company enjoys the legal status of a body corporate, which is conferred on

it by the Companies Act.

A partnership is not a body corporate and is non-existent in the contemplation of the law.

Such business as appears to be carried on by it is, in fact, carried on by the individual

partners.

(c) Number of Members

A registered private company must have at least two members under section 4 of

the Companies Act and a maximum of 50 members (excluding current and former

employees of the company who are also its members), under section 30 of the Act. A

public registered company must have at least seven members under section 4 of the

Companies Act but without a prescribed upper limit. A partnership cannot consist of

more than 20 partners.

(d) Transfer of Shares

Shares in a registered company are freely transferable unless the company’s articles

incorporate restrictive provisions.

A partnership has no shares as such but a partner cannot transfer his interest in the firm

to a third party unless all the partners have agreed to the proposed transfer.

(e) Management

A company’s members...