UNDERSTANDING LIMITED PARTNERSHIP AND LIMITED LIABILITY PARTNERSHIP
UNDERSTANDING LIMITED PARTNERSHIP AND LIMITED LIABILITY PARTNERSHIP.
Over the years friends, family, business owners have had to enter into joint business relationships under an umbrella popularly known as partnership. Partnership is a relationship between two or more people or businesses to undertake a project or business for the purpose of making and sharing profit. The parties involved are referred to as partners who come together to agree on managing a business or carry on a project to advance their mutual interest. Common interest is therefore a very important feature of a partnership relationship. All parties have a common interest, it is a joint interest with no one having an ulterior motive. In essence, It is an open relationship.
Prior to the amendment of the Companies and Allied Matter Act (CAMA), the Act recognises Partnership business and only makes provision for it to be practiced as a business name where partners are not more than 20 (twenty) and compulsory incorporation of a company where partners are more than 20 except for exempted professionals such as legal practitioners, accountants who can have more than 20 partners as business name owners or a cooperative society that has more than 20 members. There was also no unified statute regulating partnership businesses, as each state of the federation has its own Partnership Law. For example the Partnership Law of Lagos State is operative in Lagos State. Parties therefore are bound by the partnership agreement entered into and mutually signed between themselves to guide the business. In the absence of a partnership agreement, the Partnership Laws of the State where the partnership is operative would be applicable.
The CAMA, upon its amendment in 2020 now contains specific provisions for partnership business and introduced two additional forms of registration solely for people desiring to join and form alliance with another to carry on business under a partnership arrangement, thereby giving more registrable options with clear and defined roles and status of parties:
Limited liability partnership (PART C)
Limited Partnership (PART D)
These two options are under Part C and Part D respectively of the Companies and Allied Matters Act. These two registration options however became effective after the Corporate Affairs Commission published on the 31st August 2021 that it had deployed the registration interfaces for LLPs and LPs on her Company Registration Portal (CRP)
Limited Liability Partnership (LLP)
A Limited Liability Partnership (LLP) is a partnership arrangement with a legal personality separate from the partners. The liabilities of the partners of an LLP are limited to the amount agreed to be contributed or what is outstanding, in the event of winding up, in the amount agreed to be contributed to the partnership by each partner. A LLP must have at least two (2) “Designated Partners” who shall be responsible for compliance with the requirements of the Act by the LLP. The Designated Partners must be individuals at least one of whom must be resident in Nigeria. The name of a LLP ends with the word “Limited Liability Partnership” or the abbreviation “LLP”.
A unique feature of LLP is that upon incorporation, it takes the status of a corporate body and becomes a legal entity separate from the partners just like an incorporated company. It can outlive its members(the partners). Any change in the partners of a LLP does not affect the existence, rights or liabilities of the limited liability partnership. LLP has no limit to membership, members can be above 20 which is the maximum number of membership for businesses other than an incorporated company. It takes at least two people (individual or corporate) to register LLP
An individual or a body corporate can join in the registration of a LLP. This is to say that a body corporate can partner with an individual or two body corporates can come together to set up a partnership business under the umbrella of a LLP.
A designate partner is one who is responsible for the doing of all acts, matters and things as are required to be done by the limited liability partnership in respect of compliance of the provisions of the law establishing limited liability partnerships including filing of any document, return, statement and other report as prescribed by CAMA and any act as may be specified in the limited liability partnership agreement, such partner is also liable to all penalties imposed on the limited liability partnership for any contravention of those provisions.
Upon incorporation, A partner of a limited liability partnership is, for the purpose of the business of the limited liability partnership, the agent of the limited liability partnership, but not of other partners. This is unlike what is obtainable before the CAMA provisions, where partners can be tagged agent of one another.
A limited liability partnership is however not bound by anything done by a partner in dealing with a person if the partner in fact has no authority to act for the limited liability partnership in doing a particular act or whether the person the partner had dealings with knows that he has no authority, does not know or believe him to be a partner of the limited liability partnership.
The liabilities of a limited liability partnership shall be met out of the property of the limited liability partnership.
A limited liability partnership has an obligation to file an annual return with the Commission within 60 days of closure of its financial year and should cease to carry on business where membership is less than two except a partner is added to meet the minimum number of two.
Limited Partnership (LP)
A Limited Partnership (LP) is a partnership arrangement with at least one general partner and at least one limited partner. The liabilities of a general partner are unlimited while the liabilities of a limited partner are limited (unless he takes part in the management of the partnership or any of its transactions). A LP shall not consist of more than 20 persons. The name of a LP must end with the word “Limited Partnership” or the abbreviation “LP”.
General partner is someone who shall be liable for all debts and obligations of the firm. For LP, each limited partner shall at the time of entering into the partnership contribute, or agree to contribute, to the partnership, a sum or sums as capital or property valued at a stated amount and shall not be liable for the debts or obligations of the firm, beyond the amount so contributed or agreed to be contributed.
Like LLP, an individual or Body corporate can come together to partner and join another to register a LP.
A limited partner does not take part in the management of the partnership business and has no power to bind the firm. He/she can however, by himself or his agent, at any time inspect the books of the firm and examine the state and prospects of the partnership business and advise the partners. Where he/she takes part in the management of the partnership business, he/she will be liable for all debts and obligations of the firm incurred while he takes part in the management, as though he were a general partner.
In conclusion, the two registration options now help partners to be able to structure partnership relationships particularly as regards nature and scope of liability. So someone who has the fund but does not have the time or interest to be involved in the day to day option can choose to join in the formation of Limited partnership whereby his or her involvement in the business is limited.
The introduction of corporate legal personality for LLP is also a good way by which partners can separate themselves in the business and also allows for succession of the business such that withdrawal by a partner will not lead to untimely closure of the business.