In this Issue
1. June 2012 – Limited and General Partnerships.
2. Copyright and Disclaimer Notices.
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Partnership is one of the most common forms of establishing a business in Nigeria. The culture of sustaining long-term Partnerships that thrives and outlive their original partners have however remained mostly a mirage in Nigeria.
This educational Alert is our contribution to the enlightenment process on the provisions of the Partnership Law and how they may affect your business, if you elect to go into one (or are already in a Partnership).
What is a Partnership?
Many States in Nigeria, pre and post independence, adopted the English Partnership Act as a statute of general application. Some States like Lagos State adopted this Law with some modifications.
The Lagos State Partnership Law describes a Partnership to be the relationship which exists between people, carrying on business otherwise than as a limited liability company or incorporated trustees, with the sole objective of making and sharing profits.
The Lagos State Partnership Law preserves the rules of equity and common law already applicable to partnerships provided that these rules are not inconsistent with or in conflict with the express provisions of the Lagos State Partnership Law.
What is a Limited Partnership?
What is a limited partnership holds the most curiosity to a twenty-first century entrepreneur exploring the best way(s) of structuring his or her business(es).
The Lagos State Partnership Law provides that a Limited Partnership must not consist of more than twenty (20) people, and must have one or more General partners who shall bear the debts, liabilities and other obligations of the Partnership.
Unlike a General Partner, a Limited Partner is not liable for the debts of a Partnership beyond the amount that he or she has contributed to own equity in the Partnership. Where however, a Limited Partner draws out or receives back any portion of his equity contribution to a Partnership, such Limited Partner shall in such circumstance be liable for the debts and other related obligations of the Partnership up to the amount so drawn out or received back.
Registration of Limited Partnerships?
Every Limited Partnership that carries on business in Lagos State is obligated to register such a Limited Partnership with the Registrar of Limited Partnerships in Lagos State.
The implication of the failure of a Limited Partnership not registering such a partnership while carrying on business in Lagos State is that each and every Limited Partner will be deemed in Law to be a General Partner liable for the debts and other obligations of the Partnership.
Any changes in the registration details of a Limited Partnership must be communicated and registered with the Registrar of limited Partnerships in Lagos State within seven (7) days of the consummation of such change. The penalty for default in communicating and registering the change, to/with the Registrar of Limited Partnerships, is a fine, which on conviction will not exceed N2.00k (Two Naira) for each day during which the default continues.
Also, any change in the status of a General Partner or in the assignment of the equity of the General Partner to a Limited Partner must be immediately advertised in the Lagos State Government Gazette; and until such change is advertised in a Gazette, the change or arrangement or transaction shall have no effect in Law.
Roles of Limited Partners
A Limited Partner shall not take part in the day-to-day management of a partnership’s business or businesses. A Limited Partner shall also not have the power to bind the Partnership and where he breaches any of these provisions, the Limited Partner shall be liable for the debts of the partnership as though he were a General Partner.
A Limited Partner or his appointed agent however has the right to inspect the books of the partnership, with its operational state and prospects, and to advise the Partners managing the partnership business accordingly.
The Powers of General Partners
Every General Partner is an agent of the Partnership and of his other Partners (“the firm”); and therefore can bind himself and his Partners with regard to the business of the firm unless there is a clear intention or agreement that a General Partner has no authority to act for the Firm in a particular matter or matters.
Where one Partner pledges the credit of the Firm for a purpose which is unconnected with the Firm’s ordinary course of business, the Firm shall not be bound by such pledge unless the Firm specially authorised the Partner concerned to pledge the credit of the Firm.
Liability of Partners
General Partners are jointly liable for all the debts and other obligations of the Firm incurred while they remain Partners of the Firm. On the death of any Partner, he or her es