October 27, 2020
In 2009, the Lagos State Government enacted the Partnership (Amendment) Law of Lagos State (“the Partnership Law”). The Partnership Law, which was only applicable within the territorial confines of Lagos State, made provisions for the creation of Limited Partnerships and Limited Liability Partnerships.
However, the enactment of the Companies and Allied Matters Act, 2020 (“CAMA 2020” or “the Act”) now provides for the incorporation of Limited Liability Partnerships (LLP) across the country. This is aimed at improving the ease of doing business in Nigeria by ensuring that entrepreneurs are able to form partnerships and also enjoy reduced personal liability. Being a novel introduction into the Nigerian corporate law, this article seeks to explain the concept of LLP, its features, the potential benefits as well as the tax implications.
An LLP is a body corporate formed and incorporated under the CAMA 2020 with separate legal personality from its partners and with perpetual succession. It can sue and be sued in its name and can acquire, own, hold and develop or dispose of property, whether movable or immovable, tangible or intangible.
Generally, the partners have limited personal liabilities, i.e. their personal assets cannot be utilized or legally sequestrated in settlement of business debts and liabilities. Consequently, the liability of a partner will be met out of the assets of the LLP. However, according to the Act, in instances where the LLP or any of its partners act with the intent to defraud creditors of the LLP or any other person, the liability of the LLP and partners who acted in that manner shall be unlimited for all or any of debts or other liabilities of the LLP.
LLPs are expected to be registered with the Corporate Affairs Commission (CAC) in the manner prescribed under the Act with at least two designated partners, one of whom must be resident in Nigeria. The designated partner will be responsible for fulfilling the compliance obligations under the Act and will be liable to all penalties imposed on the limited liability partnership for any contravention of those provisions.
The CAMA 2020 also provides for the registration of a Limited Partnership (LP). In comparison, whereas an LLP limits liability for all partners, an LP only limits it for some. In an LP, at least one owner must be on record as the general partner with unlimited liability, and at least one partner must be listed as a limited partner with limited liability. Section 795 (3) of the CAMA 2020 provides that a limited partnership shall consist of one or more persons called general partners, who shall be liable for all debts and obligations of the firm, and one or more persons called limited partners. The Act also limits the number of partners in an LP to a maximum of twenty (20), while an LLP does not have a cap. In addition, the limited partner cannot have significant money invested in or hold major decision-making power in the business. If they do, they risk losing their status as a limited partner and forfeiting their limited liability status.