By Oyetola Muyiwa Atoyebi, SAN
INTRODUCTION
Rapid changes and technological developments characterize the contemporary corporate landscape. Businesses must be adaptive and flexible to remain competitive and fulfil the changing requirements of society as a whole. The provisions of the Companies and Allied Matters Act 2020 from Sections 746-794 showcases a clear pathway necessary to pivot this swift change.
A Limited Liability Partnership is a body corporate created and incorporated under this Act, and is a legal entity distinct from the Partners according to Section 746(1) of CAMA . A Limited Liability Partnership (LLP) is essentially a hybrid business form that combines the benefits of a Partnership and a Limited Liability company. This is different from a Limited Partnership which is sufficiently distinguished by the Act under Sections 795 – 810 of the CAMA, 2020.
This article delves into the Incorporation of an LLP and its requirements, the features of an LLP, the determination of rights and obligations of partners, and the registration of an LLP.
INCORPORATION OF A LIMITED LIABILITY PARTNERSHIP
The formation of an LLP must be done by two or more people who are associated with and carrying on a business for profit, as seen in Sections 753 (1) (a) and (b) of CAMA, 2020. The incorporation documents must be filled out in the manner described by the Commission and upon payment of prescribed fees.
Under Section 747 of CAMA, 2020, a person who has been deemed to be of unsound mind by a Court in Nigeria or elsewhere, or who is an undischarged bankrupt is not qualified to join an LLP as a Partner .
There are several restrictions on the registration of names of a Limited Liability Partnership under the Commission during its incorporation or name change. If the Commission considers the name of an LLP to be undesirable, similar, or substantially identical to that of another partnership, business name, limited liability partnership, body corporate, or registered trademark, the application for registration or change of name of an LLP may be denied.
Furthermore, it is important to know that incorporation is different from registration. Incorporation means forming a new business structure that becomes a recognized person or entity under the law, while registration simply means the process of registering under the government where it operates.
FEATURES OF A LIMITED LIABILITY PARTNERSHIP
1. Perpetual Succession
According to CAMA 2020 Sections 746 (2) and (3), an LLP is a business entity with Perpetual succession. Perpetual succession under the Act means that an LLP’s continuous existence is unaffected by changes in its membership or the death of any of its partners.
2. Designated Members
According to Section 749 of CAMA 2020, an LLP must have at least two designated partners who are individuals and at least one of them shall be a resident in Nigeria. The designated partners are partners who have the same rights and responsibilities as other partners of the LLP, but with additional responsibilities that include: Signing and delivering accounts, filing yearly returns, and alerting the Commission of any changes in membership, registered office address, or name; and failure to carry out these legal tasks by designated members is punishable under the law.
3. A Separate Legal Entity From Their Members
Section 746 (1) of CAMA 2020 states that an LLP is a legal entity distinct from the partners. Just like a company, the commission issues an LLP with a distinctive registration number upon incorporation. This registration number remains the same throughout its existence, even when the name is changed. Also, an LLP possesses the powers of a natural person and incorporation, meaning it can sue and be sued. It can also enter contracts and explore property management options, such as owning and developing.
4. Name And Change Of Name
Section 757 of the CAMA 2020 mandates that the name of an LLP must end with “Limited Liability Partnership” or the acronym “LLP”. It should be noted that provisions regarding reservation of name or change of name as contained in Sections 30 and 31 of CAMA 2020 as highlighted by Section 758 are also applicable to limited liability partnerships, and Section 759 also provides for the penalty for improper use of the name or acronym.
5. The Partners Have Limited Liability
Under Sections 765–767 of CAMA 2020, a partner of an LLP is an agent of the LLP, not of the other partners. A partner also cannot be held accountable for an obligation fulfilled in line with the partnership agreement, either directly or indirectly, and cannot be held accountable for the improper acts or omissions of other partners of the LLP. Like shareholders of a limited liability company, partners of an LLP act as its agents and are only liable for the amount they contributed to the LLP, encompassing their capital contribution and undrawn earnings.
This is a substantial benefit over a typical partnership, where the partners’ liability is generally unlimited. Partners of an LLP may be personally liable if they allow the LLP to continue trading, with logical knowledge that it had no reasonable possibility of avoiding insolvency; or if they allow it to continue trading with the intent of deceiving creditors. The extent to which each person was active as well as their level of influence over the business will be important considerations. A partner in an LLP is liable for his or her wrongful acts, omissions, and fraudulent activities, and he or she would have unlimited liability in such instances.
6. Transfer Of Partnership Rights
The rights of a partner to receive distributions and to share in the profits and losses can be transferred following the provisions of the LLP Agreement.
7. Cessation Of Partnership
Subject to Section 763 of CAMA 2020, a person may cease to be a partner of a limited liability partnership under the partnership agreement with the other partners. In the absence of an agreement with the other partners as to the cessation of being a partner, the partner is required to give notice in writing of not less than thirty (30) days to the other partners of his intention to resign as a partner. Furthermore, a person shall cease to be a partner of a Limited Liability Partnership on his death or the dissolution of the Limited Liability Partnership, or if he is declared to be insolvent or a person of unsound mind by a competent Court.
8. Dissolution
The Dissolution of an LLP may be done through the Courts or voluntarily as stipulated under Section 789 of CAMA.
DETERMINATION OF RIGHTS AND OBLIGATIONS OF PARTNERS
Generally, the rights and obligations of partners in an LLP are determined by the LLP agreement executed by the partners, except as otherwise provided by the act (Section 762 CAMA) . What this simply implies is that before incorporation, partners ought to have set out in writing, several terms binding their agreement to execute the partnership. It is advisable to engage the expertise of a legal practitioner which is indispensable here to ensure that partners understand the implications of the LLP agreement.
However, where there is no such agreement, the provisions of the Fifteenth Schedule to CAMA 2020 shall apply concerning Capital, profit and loss sharing, indemnity, management, admission of new partners, and record-keeping, among others.
PROCEDURES FOR THE REGISTRATION OF A LIMITED LIABILITY PARTNERSHIP
1. By Section 758, “The provisions of Sections 30 and 31 of this Act apply to the reservation of name or change of name of a Limited Liability Partnership,” and this is an availability check and reservation of name. This is the first step in the registration process, in which two names are usually required: The preferred name and the alternative name. On receipt of the application and payment of the prescribed fees, one of the names will be reserved for 60 (Sixty) days and approved for use. An availability code is given upon approval.
2. The LLP registration is to be completed with the information listed below Form CAC/LLP 01:
a) Approved LLP name;
b) Details of at least 2 partners;
c) Details of at least two designated partners one of whom must be a Nigerian resident;
d) Description of business activity;
e) Details of a verifiable registered address and address of the head office, email and phone number;
f) Details about all partners; and
g) Details of a person with significant control, Contribution of each partner to the partnership, and Partnership Agreement.
3. The required registration fee is to be paid to the Corporate Affairs Commission (CAC).
4. Where the above requirements have been complied with, the CAC shall within 14 (Fourteen) days of the submission of the application, register the LLP and issue a certificate of incorporation stating the name, date, and registration number of the LLP.
Furthermore, a partnership agreement should be drafted and reviewed by a legal practitioner, preferably with an experience in commercial transactions when establishing an LLP to capture the conditions of the partners’ relationship. Parties must agree on the following key terms of a partnership:
• Partnership Purpose, size and nature of business;
• Place of business;
• Commencement and duration;
• Partnership Contributions (Forms of Deposit);
• Partnership Payments to Partners: profit and Losses;
• Partner management rights, obligations, taxes, and decision-making process;
• Accounts of the partnership, banker, and signatories to the bank account,
• Partner withdrawals or death: buy-out agreements;
• Expansion: admission of new partners, personnel hiring, and termination; and
• Dispute resolution (litigation, mediation, and arbitration).
Lastly, it should be noted that foreign LLPs that wish to carry on business in Nigeria need to be registered with the Commission before commencing business.
CONCLUSION
The amendment of the Act is praiseworthy for the credible work put in by the legislature. This has made more individuals and professional groups explore the new provisions of the Act, but limit their liability in enhancing their business objectives. Though a fine work of art, these provisions still need a bit of clarity on certain things such as the number of partners, rotation of designated partners, taxation, and management. Nevertheless, the advantages are more prevalent as the structure is not only designed to attract investors but also to retain domestic investment within small and medium-sized enterprises.
SNIPPET
• Once an LLP is registered, it becomes a legal entity; it can sue and be sued, though an LLP is a separate entity from its partners, which thereby limits the personal liability of partners.
KEYWORDS:
Partners. Partnerships, limited liability partnerships, designated partners. Limited Liability Partnership
Mr Oyetola Muyiwa Atoyebi, SAN is the Managing Partner of O. M. Atoyebi, S.A.N & Partners (OMAPLEX Law Firm).
Mr. Atoyebi has expertise in and vast knowledge of Corporate Law Practice and this has seen him advise and represent his vast clientele in a myriad of high-level transactions. He holds the honour of being the youngest lawyer in Nigeria’s history to be conferred with the rank of Senior Advocate of Nigeria.
He can be reached at atoyebi@omaplex.com.ng
