Introduction:
If you are considering registering a business entity or organization other than a company, options open to you include registering a Sole Proprietorship and Limited Partnership as well as a Limited Liability Partnership (LLP).
The snag in registering sole proprietorship is the unlimited liabilities borne by the proprietor. As concerns partnerships, this snag may no longer be the case. As a partner, you can now limit the extent of your liability and perpetuate your business/firm. You can also structure the relationships between you and your other partners. Companies and Allied Matters Act and sister statutes protects you while you enjoy these benefits.
The truth is that a Limited Liability Partnership is a form of Partnership. It however closely resembles a Limited Liability Company than a limited partnership. The Companies and Allied Matters Act, 2020 introduced Limited Liability Partnerships to the Nigeria business landscape in 2020. It remains a veritable option for an emerging business or professional person like to consider before registering your firm.
Before you choose your sizes, here are some considerations as regards a sole proprietorship, a partnership- general or limited and a limited liability partnership.
Sole Proprietorship and Limited Partnership
Sole Proprietorship
It is the one man business entity. The proprietor enjoys the gains and losses that arise from the firm and concomitantly, bears the risk and faces unlimited liabilities of the business. That means, in case of liability arising from the business, a creditor can proceed against the personal assets of the sole proprietor. The proprietor also makes all decisions of the business from its commencement up to its termination. The business lacks perpetual succession. It is easy to set up and this form of business is usually adopted by small business entities. This is usually the cheapest and most used form of business organization. This form of business should be considered where one intends to work alone and have complete control of the business.
A sole proprietorship is usually registered as a business name with the Corporate Affairs Commission.
Partnership
Two or more persons, companies or associations who contribute resources together to create a business entity can own this form of business. A partnership must be registered as a business name with the Corporate Affairs Commission before carrying out any business for profit or gain. Joint ventures by persons or organizations also fall under partnerships.
The partners bear the risk and liabilities of the company equally. They also divide the profit of the business among themselves. A partner is an agent of the other partners. A partnership deed entered between the partners controls the relationship between the partners. In the absence of the partnership deed, the common law and statutes applies.
The Companies and Allied Matters Act, 2020 limits the number of partners to 20, except a partnership for carrying out legal or accounting practice. Each of the partners must however be a lawyer or an accountant as the case may be. It is amazing how lawyers and accountants in Nigeria and other countries are not exploiting this exemption. They can create legal or accounting conglomerates that defies their lifetime and crosses generations.
General and Limited Partnership
General and limited partnerships are the two divisions of partnership. The liabilities of general partners are unlimited and they are entitled to full management control of the business. Limited partners have little to no involvement in management, and have their liability limited to their investment in the Limited Partnership. Section 795 provides for limited partnerships.
Then Limited Liability Partnerships now comes to the scene.
Limited Liability Partnerships (LLPs):
Section 746 and later sections provides for LLPs. A Limited Liability Partnership is a body corporate and a legal entity distinct from the partners and has perpetual succession. There must be a minimum of two partners and while Limited Partnerships cannot exceed 20 partners, there is no maximum number of partners for LLPs. Every LLP must have at least two partners known as “designated partners” who are responsible for ensuring compliance with the provisions of the CAMA 2020 and will be liable for any contravention of the CAMA 2020 by the firm.
A limited liability partnership agreement entered between the partners or between the limited liability partnership and its partners controls the relationship between the partners in LLPs. In the absence of such agreement, the provisions of the Act, 2020 applies. The partners are agents of the LLP but not of the other partners. The properties of the LLP meets the liability of a LLP for every contractual or tortious actions.
As seen, the law regarding partnerships now extends to protect your investment as a partner. You no longer need to incorporate a limited liability company for your business to enjoy the benefits of limited liability, perpetual succession and unlimited maximum number of partners. All these benefits comes as an LLP Package.
We are available to provide further advice and support you and your company in respect of the above.
For further information, please contact awandubuisilaw@gmail.com