The Companies and Allied Matters Act (Chapter C20) Laws of the Federation of Nigeria 2004 (“CAMA 1990”) was initially made law in Nigeria in 1990 as a decree of the military government.  For thirty years, there were no significant amendments to the CAMA 1990 and so Nigerian companies had to, essentially, rely on a 30-year old law to govern the way businesses operate in our dynamic and evolving global community.  However, this all changed on Friday the 7th of August 2020, when President Muhammadu Buhari gave his assent to the Companies and Allied Matters Act 2020 (“CAMA 2020”). 

In the course of a 12-part series, Udo Udoma & Belo-Osagie will provide a review of the provisions of the CAMA 2020, highlighting changes that have been introduced into the body of Nigerian company law by this ground-breaking legislation.

NEW ENTITIES INTRODUCED

Prior to the CAMA 2020, Limited Partnerships (“LPs”) and Limited Liability Partnerships (“LLPs”) were recognised under the Partnership Law of Lagos State 2009, but not by any federal statute or the laws of other states.   While the legislative competence of the Lagos State legislature to enact a law regulating partnerships is not in doubt, there was an ongoing debate about the legislative competence of States in Nigeria to enact laws for the formation of corporate entities such as LLPs. There was also the concern about whether the limitation on the liabilities of partners in an LLP registered in Lagos would be recognised in other states of the Federation.

The new CAMA 2020 has introduced a regulatory framework for LLPs and LPs across Nigeria. The LLP is a legal person that can sue and be sued, hold property in its own name and lawfully do all other acts as any other legal person. LPs do not have the same limited liability status, however, they are permitted to have a general partner who is liable for all debts and obligations of the partnership, while the limited partners enjoy limited liability.

LPs and LLPs that are already registered in Lagos State may, therefore, need to consider re-registering at the Corporate Affairs Commission in order to avoid any challenge to the validity of such structures under state law.

LIMITED LIABILITY PARTNERSHIPS

Features of LLPs:

  • Corporate personality, limited liability and perpetual succession;
  • Must have at least two designated partners who are individuals (with at least one of them resident in Nigeria). Where all the partners in the LLP are corporate entities, they may nominate individuals to act as designated partners;
  • Required to keep proper books of account for each year;
  • Contributions of partners in an LLP may include cash or other forms of contribution including services or real property;
  • The rights and interests of a partner are transferrable and, consequently, a change in the partnership will not affect the existence, rights or liabilities of the LLP.

LLPs COMPARED WITH COMPANIES

Similarities:

  • can sue or be sued in its name;
  • can hold or dispose of property in its own name;
  • can choose to have a common seal;
  • the provisions of the CAMA 2020 relating to reservation of name and change of name also apply to LLPs;
  • will also be required to file statutory returns; and
  • may be wound up voluntarily or by the Court (though it's a simpler process than for companies).

Differences:

  • incorporation process is easier;
  • no requirement for LLPs to have a share capital;
  • flexibility – The operation of the partnership and distribution of profits is as set out in the Partnership Agreement. This may allow for greater flexibility in the management of the business; and
  • method of dissolution is less procedural (no need to appoint a liquidator etc.)

LIMITED PARTNERSHIPS

Under the CAMA 2020, the regulation of LPs is similar to the regulation of LLPs but with certain differences:

  • maximum of 20 persons;
  • must comprise at least one general partner and one limited partner;
  • general partners are liable for all debts and obligations of the partnership;
  • the liability of limited partners is restricted to the capital contributed or agreed to be contributed to the partnership under the limited partnership agreement;
  • the limited partner does not have the power to bind the firm or participate in the management of the firm, otherwise, he will be liable for all debts and obligations of the firm incurred for the relevant period he acted as a general partner of the firm.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.