As an entrepreneur, selecting the appropriate business structure is crucial for your venture’s success. The Companies and Allied Matters Act (CAMA) 2020 introduced significant changes to Nigeria’s business landscape, offering more options beyond the traditional general partnership.
Understanding these structures is essential to make an informed decision that aligns with your business goals.
Prior to CAMA 2020, the general partnership was the primary model for small businesses in Nigeria. Registered under a business name, this structure allowed partners to operate jointly.
However, it came with the disadvantage of unlimited liability, meaning each partner was personally responsible for the business’s debts and obligations. This posed significant risks, especially in cases of financial difficulties or legal disputes.
Recognising these challenges, CAMA 2020 introduced two new partnership structures: the Limited Liability Partnership (LLP) and the Limited Partnership (LP), aiming to provide more secure and flexible options for business owners.
This article will guide you through the statutory requirements of LLPs and LPs under CAMA 2020, highlighting their similarities and differences. By the end, you’ll have a clearer understanding of which structure best suits your business needs, helping you make a choice that balances liability, control, and growth potential.
Table of contents
- What is a Limited Liability Partnership?
- Qualification of Partners
- Limitation to the Number of Partners
- Designated Partners
- What is a Limited Partnership?
- Qualification of Partners
- Differences Between a Limited Liability Partnership and a Limited Partnership
- Similarities Between a Limited Liability Partnership and a Limited Partnership
- Conclusion
- Why Choose Tcorporate?
- Contact Us Today
What is a Limited Liability Partnership?
CAMA defines a Limited Liability Partnership as a body corporate formed and incorporated under the Act which possesses a legal entity separate from the partners. An LLP also has perpetual succession, and a change in the partners of an LLP does not affect the rights or liabilities of the LLP.¹
A Limited Liability Partnership is essentially a hybrid business form that combines the benefits of a Partnership and a Limited Liability Company. The liability of all partners is limited; therefore, unlike general partnerships, a partner is not liable for the wrong committed by another partner.
Qualification of Partners
Individuals and corporate bodies may become partners in a Limited Liability Partnership. However, a person of unsound mind, as determined by a court in Nigeria or elsewhere, and an undischarged bankrupt, are disqualified from becoming partners in an LLP.²
Limitation to the Number of Partners
Every Limited Liability Partnership must have at least two partners³ and must also have at least two designated partners who are individuals—at least one of whom must be resident in Nigeria.⁴
Designated Partners
Designated Partners are partners who have the same rights and responsibilities as other partners but also bear additional responsibilities. These include ensuring compliance with the provisions of CAMA 2020, and they are liable for any contravention.⁵ When a person ceases to be a partner, they also cease to be a designated partner.
What is a Limited Partnership?
A Limited Partnership consists of at least one or more persons called the General Partners who are liable for all debts and obligations of the firm, and one or more persons called Limited Partners⁶ whose liabilities are limited to their contributions.⁷ LPs are limited to not more than 20 persons.⁸
Qualification of Partners
Individuals and corporate bodies may become partners in a Limited Partnership. However, a person of unsound mind and undischarged bankrupts are disqualified.⁹
Differences Between a Limited Liability Partnership and a Limited Partnership
- In an LLP, all partners have limited liability, while in an LP, only the limited partners have limited liability.
- An LLP has a separate legal personality, while an LP does not.
- An LLP is liable for its debts, but in an LP, general partners are personally liable.
- LLPs can have unlimited partners; LPs are limited to 20.
- LLPs require more stringent compliance and setup costs, while LPs are easier and cheaper to establish.
Similarities Between a Limited Liability Partnership and a Limited Partnership
- The death of a partner does not dissolve either type of partnership.
- Both LLP and LP offer limited liability protection.
- Each requires a minimum of two partners.
- Both structures must operate as a business for profit.
- Individuals and corporate bodies can serve as partners in either.
Conclusion
Understanding the legal requirements of both Limited Liability Partnerships (LLPs) and Limited Partnerships (LPs) is essential for entrepreneurs seeking to establish business structures offering liability protection. While both LLPs and LPs share the advantage of limited liability, they differ significantly in terms of formation, management, and partner liability.
An LLP offers a separate legal entity with limited liability for all partners, making it ideal for professional service firms. In contrast, an LP allows some partners to take a passive role with limited liability while others bear the full weight of responsibility.
Despite their differences, both LLPs and LPs provide flexible options for entrepreneurs, depending on the risk tolerance and strategic goals of the founders.
Why Choose Tcorporate?
Navigating the legal and regulatory requirements necessary for setting up a Limited Liability Partnership or a Limited Partnership requires expertise. With our years of experience in corporate law and compliance, we can make the process seamless so you can focus on scaling your business.
Contact Us Today
Ready to set up your LLP or LP? Let us handle the complexities while you build your vision.
📞 Phone: 0908 011 9980, 0908 011 9975, 0810 347 2195
📧 Email: info@tcorporatelegaladvisory.com
🌐 Website: www.tcorporatelegaladvisory.com
Let Tcorporate guide you every step of the way. Your business growth begins here!
Written by:
Ogheneyoma Esther Ibuje LL.B, BL, ACIS
Legal Associate, Tcorporate Legal Advisory
References
¹ Sec 746 of CAMA 2020
² Sec 747 of CAMA 2020
³ Sec 748(1) of CAMA 2020
⁴ Sec 749(1) of CAMA 2020
⁵ Sec 750 of CAMA 2020
⁶ Sec 795(3) of CAMA 2020
⁷ Sec 795(4) of CAMA 2020
⁸ Sec 795(2) of CAMA 2020
⁹ Sec 796 of CAMA 2020
