One of the innovations of the Companies and Allied Matters Act (CAMA)2020 is the introduction of Limited Liability Partnerships (LLPs). An LLP is a hybrid of two forms of business structures; a limited liability company and a partnership –hence the name ‘Limited Liability Partnership’. Prior to CAMA 2020, there was no provision in any federal law for the registration and incorporation of a partnership as an LLP. It was only a state law – the Lagos State Partnership Law, which provided for the registration of a partnership as an LLP. This meant that only businesses in Lagos State could take advantage of the Lagos State Partnership Law. There were concerns as to the extent to whichan LLP registered in Lagos State could carry on its business in other states as an LLP. With the option to register an LLP with the Corporate Affairs Commission (CAC), under CAMA 2020, these concerns have become inconsequential. In this article, the term partnership will be used to refer to a general partnership(registered as a business name under CAMA, or which is unregistered), while the term LLP will be used to specifically refer to a Limited Liability Partnership.

Section 746 of CAMA provides for the registration of a partnership as an LLP. This provision does not affect the option to register a general partnership, simply as a business name, if the intending partners do not want an LLP. Upon incorporation as an LLP, the LLP becomes a body corporate, and acquires a legal personality distinct from its partners. In a partnership, there is no distinction between the partners and the partnership.Therefore the partnership can only act through its partners and in their names. It cannot buy property in its own name, nor can it sue or be sued in its name. Whereas, an LLP can act through its partners in its name. Section 756 of CAMA states that upon registration, an LLP may sue and be sued in its own name, acquire and dispose property in its own name and may choose to have a common seal in its own name. All of these can be done in its name because of its legal personality,which it acquires upon registration as an LLP.

In a partnership, the partnership business does not acquire a legal personality and the business is not distinct from its partners. Thus, a partner is an agent of the partnership firm and his other partners, solely for the purpose of the business of the firm.[1] Consequently, any partner who does any act, for the purpose of carrying on the business of the partnership binds both the partnership firm and his partners. This is not the case with an LLP.  Section 765 of CAMA states that a partner of an LLP is an agent of the LLP, for the purpose of carrying on its business, but he/she is not an agent of the other partners. So, any act done by a partner purporting to further the business of the LLP would not bind or affect the other partners in their personal capacity. This position is further reiterated by section 766(3) which states that an ‘an obligation of the limited liability partnership whether arising in contract or otherwise, shall be solely the obligation of the limited liability partnership’. Under the Partnership Act of 1890 and the Lagos State Partnership Law, the partnership and all the partners are liable jointly and personally for any obligation or debt arising out of the activities of the partnership, at the time they were partners.The Partnership Act states that even if the partner is dead, his estate will be severally liable for any obligations that accrued during his/her lifetime, if he/she was still a partner at the firm at the time the obligation arose.[2]A partner in an LLP is therefore immune from any liability that may arise from the poor judgment or negligent or reckless action of a partner carrying on the business of the LLP. This is because any obligation that arises will be satisfied with the LLP’s assets and not the personal assets of the partners.

Registering a partnership as a Limited Liability Partnership permits partners to enjoy the flexibility of having a partnership, while also taking advantage of the other benefits that come with incorporating a limited liability company such as legal personality and limited liability. The greatest advantage that an LLP offers to its partners is the protection of their personal assets. This is a benefit that is not available under a general partnership.Thus, a partner in an LLP is at no risk of losing his/her personal asset, except where the business is used to perpetrate fraud, with the knowledge of the partners.

[1] Partnership Act 1890, section 5.

[2] Partnership Act 1890, section 9.