How To Form A Limited Partnership Business In Nigeria

How To Form A Limited Partnership Business In Nigeria Under CAMA 2020

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Back in my Economics class, we’re taught types of business, the information handed down by our teacher was still very relevant, the only slight changes can be found in the regulatory laws guiding the formation of such businesses.

One of the businesses is Limited Partnership (LP) and I’ll be telling you what it entails to get it registered in accordance with the Company and Allied Matters Act 2020.

The most popular types of business registration in Nigeria by the Corporate Affairs Commission (CAC) over the years are Business Name, Limited Liability (Company), and Incorporated Trustees (NGO, associations, clubs, mosques, and churches among others).

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But on August 19, 2021, the Registrar General of CAC revealed that the commission would commence the registration of other two forms of businesses to conform with the global best practices, one of them is LP is one of them (https://infomediang.com/2-new-forms-of-business-registrations-in-nigeria)

Meaning:

A limited partnership also referred to as LP is formed when two or more but not more than 20 partners agree to start a profit-making business together

And sections 795 to 810 of CAMA 2020 extensively cover all the requirements for the formation of Limited Partnership Business in Nigeria and the roles of the parties involved.

In an explanation by the commission says:

The LP is a partnership arrangement with at least one general partner and at least one limited partner.

The liabilities of a general partner are unlimited while the liabilities of a limited partner are limited (unless he takes part in the management of the partnership).

An LP shall not consist of more than 20 persons. The name of an LP shall end with the word “Limited Partnership” or the abbreviation “LP”

Types of Limited Partnership in Nigeria?

This is a type of business that’s owned by two types of partners:

  1. General partner and
  2. Limited partners

Difference between a general and limited partner

While the general partners own and operate the business, limited partners only invest and do not make operational decisions or bear any personal liability for company debt.

The maximum number of people that can form a limited partnership business is 20 in Nigeria according to the CAMA 2020.

Characteristics of Limited Partners

1) The limited partners can be called the man behind the scene, they’re not “seen”. They are heard through their investment in the formation of the business.

2) They pump in money and take a share of the profits at the end of a business year or depending on the agreement on the time of profit sharing.

3) They don’t participate in the management of the business.

4) Limited partners have a passive income

5) Their liability is limited to their investment

6) They share the income tax of the business this is because income taxes are paid by the individual partners according to their share of the business.

7) One of the sub-sections of CAMA 2020 specifically states that a limited partner shall not receive back any part of his contribution.

“Unless otherwise agreed in writing by the partners, a limited partner shall not, during the continuance of the partnership, either directly or indirectly, draw out or receive back any part of his contribution and if he draws, out or receives back any such part, is liable for the debts and obligations of the partnership up to the amount so drawn out or received back.”

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Disadvantage:

1) General partners must bear all legal liability for their management decisions.

2) Limited partners can limit their liability while still benefiting financially from the growth of the business.

3) General partners usually require adequate compensation to offset these risks.

4) The burden of management lies in the general partner

Samples:

A family can come together to form a Limited Partnership. This happens when they pool resources together and assign a general partnership for the day-to-day running of the venture.

Management:

There is at least one general partner in a limited partnership who is responsible for the day-to-day management of the business.

This means the management (financially, materially, humans) and day-to-day affairs of the business lies in the hands of the general partner.

Registration of Limited Partnership in Nigeria

Like the registration of Incorporated Trustees, Business Name, and Limited Liability Company, legal registration of a Limited Partnership is also required.

1) The first step is “Reservation of name” of the partnership

Section 802 of Nigerian Law (CAMA 2020) states that:

“The name of a limited partnership must end with the words “limited partnership” (upper or lower case, or any combination), or the abbreviation “LP” (upper or lower case, or any combination, with or without punctuation)”

2) Registration fee with the Corporate Affairs Commission (CAC)

3) Partnership agreement that spells out responsibilities of the partners. The agreement should also clearly state profits would be divided among the partners.

The registration of a limited partnership shall include:

  • Name of limited partnership to be registered
  • The name shall be signed and authenticated by the partners
  • General nature of the business
  • Location of business and address
  • Full name of a general partner
  • Full address of a general partner
  • Contact details including his phone number, email address
  • Full name of limited partner
  • Full address of a limited partner
  • Contact details of limited partner which must include his phone number, email address
  • Term of agreement
  • Date of commencement
  • A statement that the partnership is limited and the description of every limited partner
  • The sum contributed and agreed to be contributed by each limited partner
  • Passport photo of the general partner
  • Passport photo of the limited partner
  • Signature of all partners involved

When the above requirements are met, CAC will run a check on your application to ensure that all information aligns with your claims

After that, normally between 7 to 14 days, a certificate of registration would be issued which you can download from your CAC dashboard and print.

The certificate shall include the limited partnership’s registration number

Takeaway:

While the limited partners in an LP commit funds to the establishment of the business with the sole aim of getting returns with any business decisions, the general partners bear the management burden and therefore take on full liability for the company.

 

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