by Tonbofa LP
by Tonbofa LP
The adverse economic effects of the Covid-19 pandemic have resulted in companies considering various options to remain a going concern. One of these ways is forming a partnership. A partnership is an agreement between two or more persons with the same objectives to manage and operate a business for profit making. Partnerships in Nigeria are regulated by the CAMA and the Partnership Laws of Lagos State 2015 applicable only to partnerships in Lagos State.
STEPS TO CARRYING ON BUSINESS AS A PARTNERSHIP
Step 1: Preparing a Partnership Agreement
The Partnership Agreement forms the basis of every partnership and governs the partners’ relationship. Although a partnership can be formed orally, in writing or by conduct, it is always advisable to have a Partnership Deed or Agreement to bind the partners. The partnership agreement will contain among others, the rights and liabilities of the partners including a deceased partner, the duration of the partnership, the scope of responsibilities of the parties and agreement as to sharing of profits and losses. Where partners fail to spell out terms of the partnership in an agreement, they are exposed to uncertainties that may lead to litigation.
Step 2: Registering A Partnership
In Nigerian States other than Lagos State, the English Partnership Act 1890, a statute of general application, is still applicable and there is no option available to register a partnership as a limited partnership or limited liability partnership. In Lagos State, partners can choose to register as Limited or Limited Liability Partnership.
Requirements for Limited partnership:
- the limited partnership must have at least one general partner and one limited partner.
- The liability of individuals who choose to be organized as a Limited Partnership is limited to the amounts contributed by the individual partners to the assets of the Limited Partnership.
- Persons registered and identified as general partners are to be liable for all the debts and obligations of the Limited Partnership.
- There is no requirement to have a share capital
- There is no express conferment of the benefit of separate legal personality on Limited partnership. Sections 41 and 54 of the Partnership Laws of Lagos State.
Requirements for Limited Liability partnership:
- separate legal entity status is given to the partnership
- share capital of at least 10% of the assets of the limited liability partnership at any given time is required
- the liability of some or all individuals who choose to be organized as a Limited Liability Partnership is limited to the amounts contributed by the individual partners to the assets of the Limited Liability Partnership. Sections 58 and 75 of the Partnership Laws of Lagos State.
- The partnership where it begins carrying on business in Nigeria must be registered under the CAMA. Section 81 of the Partnership law of Lagos State.
Step 3: Registering the Partnership’s Business Under CAMA
- By the provisions of CAMA and considering the purpose of partnerships is profit making, a partnership business can take the form of a Business Name. According to Section 573 CAMA, every individual, firm or corporation having a place of business in Nigeria and carrying on business under a business name shall be registered as a business name under the Act.
- However, where the proposed partnership formed to carry out business for profit exceeds 20 persons, it must be registered as a company or formed pursuant to any other enactment in force in Nigeria according to Section 19(1) of CAMA except for co-operative societies, legal practitioners and accountants.
- Where partners take on the structure of a business name to achieve its profit making objectives, and the name consists of the true surname of all partners without any addition other than the true forenames of the individual partners or the initials of such forenames, e:g Nwankwo, Mohammed and Kasali or Ijeoma Nwankwo, Ali Mohammed and Ade Kasali or I. Nwankwo, A. Mohammed and A. Kasali, such business shall be exempted from registration under the CAMA. Section 573(1)(a) CAMA. Where however there are other additions like & Co, registration with the CAC is compulsory.
- The liability of individual partners where the partnership is registered as a business name is unlimited as the business is not considered a separate legal entity from the partners and all partners will directly be fully liable for all losses and entitled to all profit of the business unless the partners agree otherwise or specify same by registering under the partnership laws of Lagos State.
- Where the partners exceed 20 and the partnership business is registered as a limited liability company, except as otherwise provided by agreement or registration under partnership laws of Lagos State, liability of partners is limited to value of shares taken up by the partners.
Already existing corporations may, instead of forming a new business or company to carry out the business of the partnership, opt to apply to the CAC for inclusion of the partner or partners as proprietor, or shareholders and Directors through amendment of the business’ incorporation forms subject to agreement of the parties and prepare a Partnership Agreement to guide their relationship.
For more on this, kindly send an email to firstname.lastname@example.org
STAY IN THE LOOP