Understanding Limited Liability Partnership and Limited Partnership Under Nigerian Jurisprudence: Key Differences

CONTRIBUTED BY CHIBUEZE. K. JAMES

INTRODUCTION

One of the innovations of the Companies and Allied Matters Act (CAMA) 2020 is that it created two forms of partnership: The Limited Liability Partnership (LLP) and the Limited Partnership (LP). Before the enactment of the CAMA 2020, there was only one form of Partnership which was regulated by the Partnership Act 1890; a statute of general application. However, the new CAMA introduces the concept of LLPs and LPs which combines the organizational flexibility and tax status of a partnership with the Limited Liability for members of a company.^[1] A partnership can also be referred to as a firm and it must be duly registered in Nigeria. Thus, the CAMA 2020 provides that every firm having a place of business in Nigeria and carrying on business under a business name shall be duly registered under the Act.^[2]

Though the LLP and LP have their similarities, for example, both being forms of partnership, which must be duly registered and having a minimum number of two partners, they are, however, not bereft of certain key differences, which make them unique in their nature. Thus, this work aims at providing a clear understanding of the distinctions between LLPs and LPs, to help individuals and businesses make informed decisions when choosing the appropriate legal structure for their ventures. Also, it seeks to highlight the key differences in liability, management structure and other relevant aspects between these two forms of partnerships.

The Concept of Partnership

Partnership is the relation which subsists between persons carrying on a business in common with a view of profit.^[3] The Supreme Court in Alade v Alic (Nig.) Ltd.^[4] held that “a partnership business is a voluntary association of two or more persons who jointly own or carry the business with the sole aim of making profit.

One can go on and on in defining the concept of partnership but in all definitions of partnership, three key elements must be found:

there must be a relationship between two or more persons^[5];
carrying out business in common;
for the sole purpose of making profit.

Where any of these elements are missing, then it loses its identity and taste as a partnership. That is to say, any definition of a partnership or the partnership in itself must encompass all three elements to be fully what it is said to be. Thus, a mere agreement to form a partnership cannot be regarded as a partnership as held in Henshaw v Roberts.^[6]

Contents of a Partnership Agreement

When referring to a partnership agreement, it typically denotes an internal business contract that outlines specific practices and guidelines for the firm or its partners. Such an agreement establishes the rules for the management and operation of the partnership. Although each partnership agreement may vary based on the unique objectives of the business, certain general terms should be included in the agreement.^[7] These terms include, include but are not limited to the following:

Parties: – The full names and occupations of the parties should be stated.^[8]
Commencement Date: – The date on which the partnership was formed should be clearly stated.
Duration of the Partnership: – The duration in which the partnership will last maybe definite, indefinite or upon the happening of an event. This event should be clearly stated.
The Capital of the Partnership: – It is important to note that the money contributed by the partners to set up the partnership or firm should be stated in the agreement.^[9]
The Management of the Firm: – Under this head, their interests, rights and duties in relation to the partnership shall be determined subject to any express agreement between the partners.^[10]
Expulsion of Partners: – The Partnership Act itself provides that no majority of the partners can expel any partner unless a power to do so has been conferred by express agreement between the partners.^[11]
Dissolution: – Provision should be made for the dissolution of the partnership. It can be dissolved if entered into for a fixed term, by the expiration of the term; or if entered into for a single adventure or undertaking, by the termination of that adventure or undertaking; or if entered into for an undefined term, by any partner giving notice to the other partners of his intention to dissolve the partnership.^[12]

According to the Companies and Allied Matters Act (CAMA) 2020, no partnership consisting of more than 20 persons shall be formed to carry on any business for profit or gain.^[13] However, this provision does not apply to any cooperative society or any partnership registered to practice as legal practitioners or accountants.^[14] Consequently, partnerships formed by these professional classes are allowed to exceed the 20-partner limit.

The Limited Liability Partnership (LLP)

A Limited Liability Partnership (LLP) is provided for in Part C of the Companies and Allied Matters Act (CAMA) 2020.^[15] This form of partnership differs slightly from the general nature of a partnership, making it unique. Generally, a partnership is not a legal entity and dissolves upon the death of any partner. However, under CAMA, an LLP is a body corporate formed and incorporated under the Act, and it is a legal entity separate from its partners.^[16] In furtherance, it has perpetual succession and any change in the partners of an LLP does not affect the existence, rights or liabilities of the partnership.^[17]

The law permits any individual or body corporate to be a partner in an LLP provided that such individual shall not be capable of becoming a partner if he is of unsound mind and has been so found in a court in Nigeria or elsewhere, or if the person is an undischarged bankrupt.^[18] Furthermore, in an LLP, the minimum number of partners shall be at least two partners at all material times.^[19] Interestingly, there is no maximum number required in the formation of an LLP.

Under the LLP, the law provides that it shall have two designated partners who are individual and at least one of them must be resident in Nigeria.^[20] In other words, the law makes it mandatory for every Limited Liability Partnership to have what is called designated partners who, generally, shall be individuals, one being resident in Nigeria. However, in a situation where all the partners of an LLP are bodies corporate or where one or more partners are individuals and bodies corporate, at least two individuals who are partners (in the case of an LLP having both individuals and bodies corporate as partners) or two nominees of the bodies corporate (in the case of an LLP formed only by bodies corporate) shall act as designated partners.^[21]

Finally, for the winding up of an LLP, the law provides that it may be done either voluntarily by the partners or by the Court and the LLP so wound up may be dissolved.^[22] This entails that the partners can voluntarily decide to wind up the partnership or the Court may do so on the application of the partners.

The Limited Partnership (LP)

A Limited Partnership (LP) is provided for in Part D of the Companies and Allied Matters Act (CAMA) 2020.^[23] The formation of an LP may be done in the manner and subject to the conditions set out in Part D of the CAMA 2020.^[24] An LP must consist of at least two partners and shall not consist of more than 20 persons.^[25] The law allows an individual or body corporate to be a partner in an LP. However, a person shall not be a partner in an LP if he is of unsound mind and has been so found by a Court in Nigeria or elsewhere, or where the person is an undischarged bankrupt.^[26]

Under the structure of a Limited Partnership (LP), there are two distinct types of partners: general partners and limited partners.^[27] The general partners are responsible for the active management and operation of the partnership. Consequently, they bear unlimited liability for all debts and obligations incurred by the firm. Conversely, limited partners do not participate in the day-to-day management and their liability is restricted to the extent of their investment in the partnership.

At the time of entering into the partnership, limited partners are expected to contribute or agree to contribute a specified sum or property valued at a stated amount as capital. Once this contribution is made, limited partners shall not be liable for the debts or obligations of the firm beyond the amount contributed or agreed to be contributed. However, if the partners have agreed in writing, a limited partner is not under any obligation to contribute any capital or property to the partnership.^[28]

Finally, a limited partner shall not take part in the management of the partnership business and shall not have the power to bind the firm. However, this provision does not preclude him or his agent from inspecting the books of the firm at any time.^[29] Where he takes part in the management of the partnership business, he shall 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.^[30]

Differences between Limited Liability Partnership and Limited Partnership
LLP is a body corporate, separate from its partners and has perpetual succession.	LP is not a body corporate. It is not separate from its partners and has no perpetual succession.
There is no maximum number of partners in the formation of LLP.	The maximum number of partners in the formation of LP is 20.
In an LLP, there are designated partners who ensure compliance of the firm with the Act.	In an LP, there are general partners who are involved in the management of the firm and limited partners who are not involved in the management of the firm.
In an LLP, the partners may voluntarily wind up or the court may give an order of winding up.	In an LP, the court or the general partners may wind up the partnership.^[31]
The liability of partners in an LLP is limited.	Generally, the liability of partners in an LP is unlimited except it is with respect to limited partners.

CONCLUSION

The CAMA 2020 brought about a lot of innovations including the introduction of the Limited Liability Partnership provided for in Part C and the Limited Partnership provided for in Part D of the CAMA 2020. Though both forms of partnership share some similarities, there are differences between them, which makes them peculiar. This work distinguished these two forms of partnerships, specifically highlighting the differences between the two. This will aid individuals and businesses in choosing the appropriate structure for their businesses, as well as educate readers on the nature of the two forms of partnership available in Nigeria under the law.

Notes on CAMA, CAMA 2020. ↑
Section 814, ibid ↑
Partnership Act, 1890 ↑
(2010) 19 NWLR (Pt. 126) 111 at pg. 143 ↑
Uredi v Dada (1988) LLJR-SC ↑
(1967) 1 ALR ↑
Horton, M, ‘Which Terms Should be Included in a Partnership Agreement?’ available at <https://www.investopedia.com/ask/answers/041015/which-terms-should-be-included-partnership-agreement.asp> accessed 14^th May, 2024. ↑
Henshaw v Roberts Supra. ↑
Halaby v Halaby (1961) DLSC5393. ↑
Section 24, Partnership Act 1890. ↑
Section 24, ibid. ↑
Section 32, ibid. ↑
Section 19(1), CAMA 2020. ↑
Section 19(2), CAMA 2020. ↑
See sections 746 – 795, CAMA 2020. ↑
Section 746(1), CAMA 2020. ↑
Section 746(2)(3), ibid. ↑
Section 747, ibid. ↑
Section 78, ibid. ↑
Section 749, ibid. ↑
Ibid. ↑
Section 789, ibid. ↑
Section 790-810, ibid. ↑
Section 795(1), ibid. ↑
Section 795(2), ibid. ↑
Section 796, ibid. ↑
Section 795(3), ibid. ↑
Secti0n 795(4), ibid. ↑
Section 806 (1)(a), ibid. ↑
Section 806(1)(b), ibid. ↑
Section 806(3), ibid. ↑