PARTNERSHIP UNDER THE COMPANIES AND ALLIED MATTER’S ACT, 2020
A partnership is an arrangement between two or more people (the “Partners”) to do business together with the intention of making a profit.
The General Partnership, Limited Partnership, and Limited Liability Partnership are three different forms of partnerships available in Nigeria.
Prior to the CAMA ( Company and Allied Matters Act 2020) coming into force, partnerships were primarily regulated by state laws, such as the Lagos State Partnership Law 2003 as Amended, which recognized the various types of partnerships and provided guidelines for their operation.
The commencement of the CAMA, 2020 brought with it a lot of excitement and hope. Two novel ideas developed by the CAMA 2020 which differentiated it from the CAMA 1990 were the creation of the Limited Liability Partnerships and the Liability Partnerships.
The CAMA 2020 provided centralized rules throughout Nigeria governing these types of business relationships.
TYPES OF PARTNERSHIPS IN NIGERIA UNDER THE CAMA 2020
GENERAL PARTNERSHIP [GP]: In this type of relationship, each partner agrees to make a contribution to the project as specified in the partnership agreement and all have unlimited liability towards the Partnership, this simply means that the partners’ private property may be sought after by creditors.
The Partnership is not a separate entity from the partners.
Similarly, a partner’s death or resignation would also bring the partnership to an end.
A general partnership would be registered with the CAC as a regular business name.
There can be no more than 20 people in a general partnership.
LIMITED LIABILITY PARTNERSHIP [LLP]: This is a type of Partnership in which the characteristics of a Company and a General Partnership are combined.
Section 746 (1) CAMA, 2020, defines it as a Corporate Individual, a separate legal entity from the partners, with the ability to sue and be sued in the name of the Partnership, provided the Partnership is registered as such with the Corporate and Affairs Commission.
Liabilities, losses, and profits are limited to the amount contributed to the Partnership by each Partner.
In the event of a liquidation, partners’ personal assets are protected from being used to satisfy creditors(similar to the way a company’s shareholders’ assets have legal protection, once they have paid up on shares ).
There is no limit to the number of partners.
The death of a Partner does not result in the dissolution of the partnership.
LIMITED PARTNERSHIP [LP]: The fact that not every partner in this sort of collaboration is the same distinguishes it from other partnership types.
In a limited partnership, one partner, known as the General Partners, has unlimited liability while the other, the Limited Partner, has limited liability, which would affect how much he participates in the operation of the company.
[The limited partner however risks losing this limited liability rights if he holds significant decision-making rights].
The Limited Partner’s liability is limited to a predetermined sum, and it does not extend past the contribution made in terms of debts or liabilities resulting from the partnership.
According to CAMA 2020 section 795(3), there must be at least one general partner and one limited partner (but there may be more than one).
People in this partnership cannot be more than twenty .
DIFFERENCES BETWEEN THE GENERAL PARTNERSHIP, LIMITED LIABILITY PARTNERSHIP, AND LIABILITY PARTNERSHIP
1. LIABILITY OF PARTNERS: The liability of the partners is a significant difference between the types of partnerships.
The partners’ liability in an LLP is limited to their contributions.
Their personal assets are protected from lawsuits and other claims.
This limited legal liability veil will be lifted, however, if the liability or lawsuit is the result of the partner’s intentional, fraudulent, unauthorized, or illegal activity.
The liability of partners in a GP is unlimited, whereas in an LP; the liability of the limited partner is limited to his contributions while the liability of the general partners is unlimited.
2. LEGAL PERSONALITY: The ability to be considered a person under the law is referred to as legal personality.
A legal person can sue and be sued, and it can enter into contracts in its own name.
The right to own property and enjoy rights are all characteristics of a legal personality.
Unlike other types of partnerships, a registered LLP is considered a Legal Person.
It can perform all of the functions of a natural person.
The partners are agents of themselves in order forms of partnerships.
Partners in an LLP, on the other hand, act as agents for the Partnership.
3. PERPETUAL SUCCESSION: This is the continuing of an organization’s existence notwithstanding a member’s or the organization’s owner’s death, insanity, bankruptcy, or change of ownership.
Despite the passing of its partners, limited liability partnerships continue to operate, just like a limited liability company.
According to section 763 (1) of CAMA 2020, a partner of a limited liability partnership may resign after reaching an agreement with the other partners or, in the absence of an agreement, by giving at least 30 days of written notice to the other partners of his desire to do so.
Other forms of partnerships do not enjoy this feature.
4. GENERATIONAL WEALTH TRANSFER: The rights of a partner to a share of the Partnership’s profits and losses can be transferred entirely or partially in the LLP, subject to the provisions of the partnership deed, which is not available in other types of Partnerships.
5. NUMBER OF PARTNERS: Partners in an LLP be more than 20, whereas partners in other types of Partnerships cannot be more than 20.
6. MANAGEMENT: In contrast to LPs, where limited partners are prohibited from managing the partnership’s affairs, LLPs permit all partners to participate in the management and have the authority to bind the Partnership in the course of business.
While some partners may choose to play more active roles in the partnership’s management, others may choose to play a more passive one.
The type of Partnership that individuals may register or form is largely determined by the Partners’ preferences.
Professional businesses like accountants, engineers, and lawyers are frequently advised to enter into and register LLP agreements.
An LLP is recommended if you want your partnership to last beyond the initial partners.
Individuals who do not want to go through the formalities of registering their Partnership or who want to operate a sole Proprietorship should consider forming a General Partnership or using a Business Name.
To avoid unnecessary disputes though, they are advised to have a partnership deed to help them have clarity on the terms of their partnership.
An individual may choose the LP if he intends to form a partnership but wants more rights.
In conclusion, individuals should seek the advice of Legal Practitioners who are able to properly advise them on the best form of partnership that best suits their situations.
Would you like us to help you with the appropriate legal structure for your business? Send an email to us at [email protected] to get started.