The incorporation of Limited Liability Partnerships (LLP) and Limited Partnerships (LP) have been provided for under the recent enactment of the Companies and Allied Matters Act, 2020 (“CAMA 2020” or “the Act”).
A crucial difference between LLPs and LPs can be seen in the description of the former under Section 746 (1) of the CAMA which describes it as a body corporate – being a separate legal entity from its partners provided that such partners have subscribed their names to an incorporation document, filed same in the prescribed form at the Commission and paid the required fees.
On the other hand, a Limited Partnership is not a body corporate and the partnership firm is sued in the name of the partners and more particularly the general partners are liable for the debt and obligations of the partnership.
In terms of management, all partners of a limited liability partnership may take part in its management and have powers to bind the Partnership in the course of the business of the Limited Liability Partnership or with its authority; whereas, in a limited partnership, limited partners shall not take part in the management of the partnership business.
In an LP, at least one owner must be on record as the general partner with unlimited liability, and at least one partner must be listed as a limited partner with limited liability. Section 795 (3) of the CAMA 2020 provides that a limited partnership shall consist of one or more persons called general partners, who shall be liable for all debts and obligations of the firm, and one or more persons called limited partners. In contrast, an LLP limits liability for all partners.
The Act also limits the number of partners in an LP to a maximum of twenty (20), while no such limitation exists for LLPs. Every LLP must have at least two partners known as “designated partners” who are responsible for ensuring compliance with the provisions of the CAMA 2020 and will be liable for any contravention of the CAMA 2020 by the LLP. An LP must have a partner known as a “general partner” who has unlimited liability for all debts and obligations of the partnership. Other partners in an LP are the “limited partners” and their liability for the debts and obligations of the partnership is limited to the sums they contributed or agreed to contribute at the time of joining the partnership.
Additionally, the limited partner cannot have significant money invested in or hold major decision-making power in the business. If they do, they risk forfeiting their status as a limited partner and relinquishing their limited liability status.
Written by Sandra Onyia & Martha Braimah
FOR: Starlion Legal