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Faith Musyoka, Adv. March 25, 2025Business Contracts

Drafting Partnership Agreements

Why "gentlemen's agreements" fail business partners

Two business partners shaking hands over contract

You trust your friend or relative. You start a business together in Machakos – maybe a hardware store, a transport company, or a restaurant. You agree verbally: "We'll share profits 50-50. No need for paperwork." Six months later, one partner takes cash without accounting, another wants to leave, and suddenly you are in court, spending legal fees you never planned for. This is the reality of gentlemen's agreements. A written partnership agreement is not a sign of mistrust – it is a tool to prevent conflicts and protect each partner.

Legal basis: Under the Partnership Act (Cap 26), if you have no written agreement, the default rules apply – which may be unfair. For example, profits are shared equally regardless of capital contributed, and any partner can dissolve the partnership anytime.

Essential Clauses in a Partnership Deed

  • Capital contribution: How much each partner puts in (cash, property, or skills).
  • Profit & loss sharing ratio: Not necessarily equal – can be proportional to contribution.
  • Management roles: Who makes day-to-day decisions? What needs unanimous consent?
  • Drawings & salary: Can partners withdraw money monthly? Are any partners paid a salary?
  • Admission of new partners: Must all existing partners agree?
  • Retirement & expulsion: Grounds for forcing a partner out (e.g., fraud, bankruptcy).
  • Dispute resolution: Mediation first, then arbitration, then court.
  • Non-compete clause: Restricts a departing partner from starting a similar business nearby.
  • Dissolution procedure: How to wind up, sell assets, and distribute proceeds.

Common Reasons Partnerships Fail (Without a Written Agreement)

One partner does all the work but gets equal pay. Another dies, and their family demands the business's assets. A partner uses partnership property for personal gain. There's no clear exit process when one wants to leave.

How to Draft and Register a Partnership Deed

  1. Engage an advocate to draft a customised deed tailored to your business.
  2. Sign before an advocate (notary optional but recommended).
  3. Secure the original deed – give each partner a copy.
  4. Register the partnership business name with the Registrar of Companies (eCitizen).
"A handshake is for greeting, not for governing a business. I have seen too many friends become enemies because they didn't put their terms in writing before the money started flowing." — Faith Musyoka, Commercial Mediator

Musyoka & Mutinda Advocates drafts robust partnership agreements that balance the interests of all parties and include effective dispute resolution mechanisms. We serve startups and established businesses in Machakos.