Understanding Nigerian Partnership Structures: Types, Benefits And Legal Considerations

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One of the significant changes introduced by the Companies and Allied Matters Act, 2020 are the additions of Limited Partnerships and Limited Liability Partnerships to the already existing general partnership structure.
Nigeria Corporate/Commercial Law

Introduction

One of the significant changes introduced by the Companies and Allied Matters Act, 2020 ("The Act") are the additions of Limited Partnerships (LPs) and Limited Liability Partnerships (LLPs) to the already existing general partnership structure. These new business structures offer distinct advantages over the traditional general partnerships, reflecting global best practices and providing businesses with more flexibility and protection. This article delves into the details of the different kinds of partnerships that can be registered with the Corporate Affairs Commission, their differences, advantages and disadvantages, and legal requirements etc.

General Partnerships

A general partnership is one of the simplest and most common form of partnership and business organization that can be registered in Nigeria. It involves two or more individuals (not exceeding 20) coming together, usually bound by a partnership agreement to run a business, share profits, losses, and responsibilities. It is registered as a business name with the Corporate Affairs Commission.

Features

  1. All partners share equal responsibility for managing the business and are jointly and severally liable for its debts and obligations. Hence, there are no limits to each partner's liabilities for debts and each partner's assets can be used to satisfy the partnership's liabilities.
  2. Each partner shares the profits and losses of the business according to the terms outlined in their partnership agreement. Typically, this is in equal proportions, however, the partnership agreement can specify otherwise.
  3. Each partner acts as an agent for the partnership, meaning that the actions of one partner in relation to the partnership can legally bind the entire partnership. This underscores the importance of trust and clear communication among partners.
  4. There are fewer regulatory requirements, and it is relatively simple to set up compared to the other forms of partnership. There are also fewer tax requirements, i.e., withholding tax, personal income tax and VAT in some instance.

Advantages

  1. There are less strict regulations compared to the other forms of partnerships. Thus, it is easier to set up.
  2. All partners can be involved in the management of the partnership leading to better and more informed decisions.

Disadvantages

  1. The death or bankruptcy of one of the partners brings the partnership to an end. Although, this can be avoided in the partnership agreement.
  2. There are not many options to raising capital for the business of the partnership.
  3. The unlimited liability of each partner can be a disadvantage.

Limited Partnerships (LP)

A limited partnership is a form of partnership where at least two or more (not more than 20 persons) agree to carry on business for the purpose of making profit. Similar to a general partnership, however, in a limited partnership, there is at least one general partner whose liabilities are unlimited and a limited partner whose liabilities are limited to the amount he agrees to contribute to the partnership.

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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.

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