Nature of Limited Liability Partnerships (LLPs) in Nigeria

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By Denis Ogunbowale Esq

Brief Introduction

Due to the limit of 20 (Twenty) that has been put on the membership of partnerships traditionally, there has always been a misconception that the liability of partnerships is not one that could exceed the financial abilitites of the partners and the partnership.

In the aftermath of the collapse of the real sector and the prices of energy prices in Texas, United States in 1980, a lot of banks and financial institutions went bankrupt. Attempts were made to recover assets from the accountancy firms and law firms that had advised the banks. The effect was that the firms were the subject of huge liability litigation which had the potential to bankrupt them and adversely affect partners that were innocent.

Therefore, there was a need to put in place a safeguard for such partners against personal liability for such acts done by other partners in their partnership hence the birth of LLPs. Laws were passed to that effect and other countries such as China, Singapore, England followed suit.

On 7th August, 2020; President Muhammadu Buhari signed the Companies and Allied Matters Bill into law. The Companies and Allied Matters Act [CAMA], 2020 introduced new provisions in order to ensure that the regulatory framework of companies in Nigeria reflect modern and commercial realities in the world. Part of the innovations of CAMA was the introduction of the concept of LLPs in the Nigeria Market. [1]

Definition and Utility

LLPs are a form of business organisations that combine both the advantages of limited liability companies and partnerships. They are hybrid organisations in that they have corporate personality[2] and limited liability[3] while also giving the partners the flexibility to organise their affairs in such ways as are traditionally allowed by partnerships.

LLPs are ideal for large firms of professionals such as doctors, accountant because they have the benefit of limited liability without incurring large costs on post incorporation compliance. As earlier mentioned, it also prevents innocent partners from being personally liable for the acts of other partners. It is therefore financially smarter and safer for such firms to adopt the corporate structure of LLPs.

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LLPs in Nigeria

It should be noted that while there are differences in various countries as to the nature of LLPs, LLPs are fundamentally the same across jurisdictions. LLPs are a fairly recent concept in Nigeria and a lot of organisations are now adopting their corporate structure.

  • Legislative History and Framework

Generally Speaking, Partnerships in Nigeria are been governed by the provision the provisions of CAMA, Partnership Act of 1890 and Partnership laws of the various states where applicable. Due to the increase of foreign direct investments (FDIs) into Nigeria especially Lagos and the need to address the issue of numerous litigation on the personal liability of partners, the concept of LLPs were introduced into Lagos.

LLPs were introduced into Lagos by the Partnership Law of Lagos State, 2009[4]. Most states had not enacted their partnership laws and were governed by the provision of the Partnership Act of 1890. The Partnership Act 1890 did not provide for limited liability partnerships and such LLPs were not recognised by most state laws. Part C of CAMA 2020 now provides a robust regulatory framework regarding LLPs that covers the field.

  • Features of LLPs in Nigeria
  1. Name: CAMA 2020 mandates that the name of an LLP must end with “Limited Liability Partnership” or the acronym “LLP”[5]. It should be noted that provisions regarding reservation of name or change of name as contained in Section 30 and 31 of CAMA 2020 are also applicable to limited liability partnerships[6]. Section 759 also provides for the penalty for improper use of the name or acronym.
  1. Corporate Personality: An LLP is a body corporate formed and incorporated under CAMA 2020 and is a separate legal entity from the partners[7]. On the jural units which the law ascribes legal personality, see the case of Fawehinmi v N.B.A (No.2) 1989 2 NWLR Pt 105.
  1. Relationship: Under general partnerships, partners are the agents of each other. However in LLPs, Partners are agents of the LLP.[8]
  1. Limited Liability: The liability of partners is limited to their capital contribution to the partnership. It should be noted that where there has been fraud, the liability on the partner and the LLP is unlimited unless it is established that the partner did it without the knowledge of the LLP in which case, he/she will be solely liable[9]. 
  1. Designated Partner: Designated partners are partners that are responsible for the ensuring compliance with the provisions of CAMA and are personally liable for penalties or fines as a result of non-compliance. They play the role of directors in companies. Every LLP is required to have at least 2 designated partners who are individuals one of which must be resident in Nigeria[10]. It should be noted that where all the partners are companies or where only one of the partners is an individual, nominees of such companies can be appointed as designated partners.
  • Procedure for the registration of LLPs 
  1. Availability check and reservation of name: This is the first step in the registration. Two names are usually required which are the preferred name and the alternative name. On receipt of the application and on payment of prescribed fees, one of the names will be reserved for 60 days and approved for use. An availability code is given upon approval.
  1. Registration:  Upon payment of the requisite fees, filling of the form CAC/LLP 01 and submission of all other documents as required by the Commission, the LLP will be registered. Then a certificate of registration will be issued to the LLP. The details required to be provided in form CAC/LLP are as follows;
  • Approved LLP name
  • Details of at least 2 partners
  • Detail of at least 2 designated partners, one of which must be resident in Nigeria
  • Description of business activity
  • Details of verifiable registered address and address of the head office, email and phone number
  • Details of all members
  • Details of a person with significant control
  • Contribution of each member to the partnership
  • Partnership Agreement.
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It should be noted that foreign LLPs who wish to carry on business in Nigeria need to be registered under CAMA 2020 before commencing business[11]. The Minister by regulation has the power to exempt an LLP from the requirement of incorporation[12]. Regulation 25 of the Company Regulations 2021 states that a foreign LLP may apply to the Minister for exemption from incorporation if it is an –

  1. LLP invited to Nigeria by or with the approval of the Federal Government to execute any specified individual project.
  2. LLP in Nigeria for the execution of specific individual loan projects on behalf of a donor country or international organization.
  3. LLP owned by a foreign government and engaged solely in export promotion activities.
  4. An engineering and technical expert engaged on any individual specialist project under contract with any of the governments in the Federation or any of their agencies or with any other body or person, where such contract has been approved by the Federal Government.

Conclusion

In conclusion, the innovation of LLPs in Nigeria is one that will not only drive increased investments but also growth of the economy at large. This is so because it reduces the risk with investing and increases the ease of doing business in Nigeria. The innovation of LLPs is a marker that our regulatory framework of companies is in line with universally accepted realities. The investment climate in Nigeria has its fair of challenges; however the statutory recognition of LLPs by CAMA is indeed a step in the right direction.

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Denis Ogunbowale Esq is a Legal Associate at Rickey Tarfa SAN & Co, with keen interest in corporate law, corporate finance law and project finance law.

References:

[1] Part C of CAMA 2020

[2] Section 746 of CAMA 2020

[3] Section 756 of CAMA 2020

[4] Part 4 of the Partnership Law of Lagos State 2009

[5] Section 747 of CAMA 2020

[6] Section 758 of CAMA 2020

[7] Section 746 of CAMA 2020

[8] Section 765 of CAMA 2020

[9] Section 769 of CAMA 2021

[10] Section 749 of CAMA 2020

[11] Section 788(1) of CAMA 2020

[12] Section 788(2) of CAMA 2020

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