A REVIEW OF LIMITED LIABILITY PARTNERSHIPS UNDER THE PARTNERSHIP LAW OF LAGOS STATE 2009

Background

The scope and nature of business enterprise in Lagos State is now set to experience new dynamism with the creation of Limited Partnerships under the Partnership Law of Lagos State. The introduction of Limited Liability Partnerships has given impetus to the general law of Partnerships in the State. The Partnership Law of Lagos State 2003 which is the precursor to the current Law was amended in 2009 to provide for Limited liability partnership (LLP).

Globally, the need for a more dynamic form of partnership to address the increase in litigation resulting in personal liability by partners and the consequent threat to partnership firms and their partners has necessitated the introduction of a form of partnership that would provide a limitation of liability analogous to that enjoyed by directors of a limited liability company. This is timely and important especially for individuals and groups providing professional services. In the same vein, the desire to protect investors and keep the trend of LLP’s in growing economies around the globe encouraged the government of Lagos State to push for the creation of limited liability partnerships.

It is important to note however that the English Partnership Act 1890, a statute of general application, is still applicable in most states of the federation with the exception of a few states, such as Lagos State, which have enacted their own Partnership Law. The Lagos State government with the amendment of the 2003 Partnership Law, which hitherto made no provision for Limited Liability Partnerships, affirms the essence and importance of LLP’s to the growth and development of businesses. According to the State government, the newly amended law is essentially a legal vehicle for the association of persons who intend to engage in a joint trade or business for profit, allowing them to enjoy most of the benefits accruable to limited liability companies. It is against this backdrop that this new class of partnership requires a proper appraisal in order to appreciate its salutary effects.

Essentially, the law introduces the concept of Limited Liability Partnerships into the scheme of relationship among partnership business types and contains amendments in the Partnership Law creating Limited Liability Partnerships (LLP) in business. To this effect, investors that register their businesses under this law enjoy reduced responsibility in the event the partnership breaks up or the venture fails.

Nature of a Limited Liability Partnership under the Law

The Limited Liability Partnership is provided for under Part 4 of The Partnership Law of Lagos State 2009 and it is subject to the conditions provided for under the Partnership Law.

Limited liability partnerships generally combine the benefits of a corporate structure such as limited liability companies with those of a partnership structure and may best be described as a hybrid between an incorporated company and a partnership.

Prior to the inception of limited liability partnerships, a partnership could not benefit from the protection of limited liability. As stated by the court in the case of Cox v Hickman (1860) 8 HL Cas 268:

The liability of one partner for the acts of his co-partners is in truth the liability of a principal for the acts of his agent

However, with the amendment of the Partnership law, such protection is now available under an LLP. Generally, a limited liability partnership (LLP) is a partnership where some or all partners have limited liability. In an LLP, some partners have a form of limited liability similar to that of the shareholders of a corporation and one partner is not responsible or liable for another partner’s misconduct or negligence.

Curiously however, there is no definition of a limited liability partnership under the Lagos State limited liability law. The LLP law rather focuses on its formation, liability of its members and requirements for such formation. This is at variance with the position in the UK where the LLP Act 2000 defines a LLP as a body corporate (with legal personality separate from that of its members) which is formed by being incorporated.

It is suggested that a definition of an LLP under the partnership law would therefore give a clear exposition of an LLP as distinguished from a general partnership or a limited partnership. It would also be helpful in drawing a comparison with LLP’s in other jurisdictions and how the structure of LLP’s in Nigeria is coloured by peculiarities of our environment.

Legal Personality

Generally in law, a partnership has no independent corporate legal existence, distinct from that of its members. Partnership Law is based on the law of agency with each partner becoming an agent of the others.

Section 58 (4) of the Partnership Law of Lagos State (2009) confers on an LLP, legal personality as it can sue and be sued in its registered name. A significant aspect of the LLP however is that a partner in an LLP will be liable to be sued in his personal capacity for acts of the partnership in cases of fraud, misrepresentation and other improper conduct alleged to have been committed by such partner. The LLP partner will also be liable where it is established that it is in the reasonable interest of the public for an action to be maintained against such individual. Such action however, can only be maintained through a written consent by the Commissioner for Justice.

The converse is the case under a general partnership where every partner is an agent of the firm and his other partners for the purpose of the business of the partnership. The acts of every partner who does any act for carrying on in the usual way business of the kind carried on by the firm of which he is a member, binds the firm and his partners unless the partner so acting has in fact no authority to act for the firm in the particular matter and the person with whom he is dealing with either knows that he has no authority or does not know or believe him to be a partner.

It is pertinent to note that the main feature of a partnership is the relationship between the members, whereas with an LLP it is the act of association that creates the entity. This can be gleaned from the fact that in a partnership, every member is an agent of the partnership and an agent of the other partners whereas in an LLP every partner is an agent of the LLP itself but not of the other partners.

The extent of legal personality derivable under the Lagos LLP law however raises certain questions as to whether incidents of legal personality arise by virtue of the provision of Section 58 (4) of the Law which provides that:

“A Limited liability Partnership may sue and be sued in its registered name; ……..; however a limited liability partner will be liable to be sued in his personal capacity for acts of the partnership in the following circumstances:

  1. (a)  Cases of fraud, misrepresentation and other conduct alleged to have been committed by the limited liability partner;
    and
  2. (b)  With the written consent of the Commissioner where it is established that it is in the reasonable interest of the public for an action to be maintained against an individual limited liability partner.”

The answer to this is in the affirmative. However, a further implication of this provision under the LLP law is that separate legal personality does not necessarily insulate partners from personal liability to third parties. In fact, the thrust of the limited liability law lies in the extent of liability that can be incurred by the partners of the business. It is pertinent to note that the jural units upon which the law ascribes legal personality are:

  1. Human beings
  2. Companies incorporated under the CAMA
  3. Corporation sole with perpetual succession
  4. Trade Unions
  5. Partnerships
  6. Friendly Societies

See Fawehinmi v. N.B.A. (No.2) 1989 2NWLR Pt 105

Extent of Liability of a LLP under the law

Under a general partnership, every partner in the firm is liable jointly with other partners for all debts and obligations of the firm incurred while he is a partner and after his death his estate is also severally liable in due course of administration for such debts and obligations in so far as the debts and obligations remain unsatisfied, subject to the prior payment of his separate debts.

Section 75(3) of the Partnership Law of Lagos State 2009 provides that a limited liability partner shall not be liable for the debts or action or inaction of the partnership or limited liability partnership beyond the amount subscribed by such limited liability partner under the current registration and/or partnership agreement. The general implication of this is that partners in an LLP are immune personally to lawsuits, if an entity decides to take them to court. This is quite at variance with what obtains in limited partnerships which must consist of one or more persons called general partners where there is at least one general partner with unlimited liability, the same cannot be said of the LLP as no such provision is made.

Registration

The requirements that partners take out indemnity bonds and maintain professional liability insurance as a precondition for registration ensures the protection of members of the public. Section 60 of the LLP law spells out the conditions to be fulfilled in order to register an LLP. Having an existing partnership in place is a pre-condition for registering a LLP. The law also provides that two or more persons associated for carrying on a lawful business with a view to profit must subscribe their names to the registration document which will have to be delivered to the Registrar of Limited Partnerships along with a Partnership agreement where such exists between the Partners.

In addition, the subscribers have to furnish the Registrar with a statement by a subscriber or subscribers to the registration document or by the solicitor engaged in the formation of the LLP, that the requirement that two or more persons associated for carrying on a lawful business with a view to profit have subscribed their names requirement to the registration document.

The position is however different in the U.K, India and some other jurisdictions where an LLP is provided for under the law. Under such jurisdictions, LLP’s are formed by incorporation process similar to limited liability companies. In the U.S for example, each individual state has its own law governing the formation of an LLP. Formation of an LLP typically requires filing certificates with the county and state offices.

For the purpose of registration as an LLP under the Lagos partnership law therefore, all the partners or a majority of the partners must agree that the partnership be registered as a limited liability partnership.

The effect of registration as provided for under Section 60 is to confer the status of a limited liability partnership with its consequent protection from liability for the debts or action or inaction of the partnership on its partners which hitherto made every partner in the firm liable jointly with other partners for all debts and obligations of the firm.

It should be noted that the mere affixation of LLP may not be conclusive proof of the status of an LLP as provided for by the provision of Section 62 of the law. It is only the production of a certificate of registration that will be conclusive evidence of registration of a limited liability partnership. This provision takes cognisance of the decision of the Supreme Court in the case of Magbagbeola v. Sanni (2005) 4 SCM where it was held that the best evidence of incorporation of a company is the production of the certificate of incorporation.

Regulation

Under the Lagos Partnership law 2009, an LLP is regulated by the provisions of the law as administered by the State Commissioner for Justice who has general regulatory powers to ensure that the administration of the provisions of the law on LLP is done in a manner that facilitates easy completion of registration and other processes under the Law. To this extent, it may be said that the LLP law is outside the scope of the Companies and Allied matters Act (2004). Furthermore, recourse may also be had to Section 66 of the law which provides that:

  1.  Except as otherwise provided by this law or any other enactment, the mutual rights and duties of the limited liability partners of a limited liability partnership, and the mutual rights and duties of a limited liability partnership and its partnership and its partners, shall be governed:
  • by agreement between the partners, or between the limited liability partnership and its partners, or
  • in the absence of agreement as to any matter, by any regulations made under this Law incorporating anyrules relating to partnerships in general and limited liability partners in particular.

PROVIDED always that in the event of a conflict between any provisions of any general law relating to partnerships and the specific provisions of this Part 4 as may be amended from time to time, the provisions of this Part 4 shall supercede and the provisions of the general law relating to partnerships shall be considered modified to the extent of any inconsistency with respect to its application to limited liability partnerships.

This provision restricts the regulatory scope of a limited liability partnership to the agreement between the partners or the provisions of the Partnership Law of Lagos State. It is pertinent to also note that the provision of Section 81 of the Partnership law of Lagos State provides that:

„„Nothing in this Law shall be construed as precluding the registration of a registered Limited Liability Partnership as a business name under any existing law‟‟

It is evident that an existing LLP can still be registered as a business name therefore bringing it within the contemplation of Part B of the Companies and Allied Matters Act 2004 (CAMA). The position as regards the applicability of CAMA to an LLP therefore lies only to the extent of an LLP being registered as a business name and in such case falling under the scope and ambit of CAMA.

Furthermore, in terms of regulation, the State Commissioner for Justice in consultation with the registrar of limited partnerships, may make rules concerning fees to be paid, forms to be used towards the registration of a LLP as well as the general conduct and regulation of registration and any matter incidental to the operation of the law as provided for by virtue of Section 73 of the Lagos State Partnership law 2009.

By contrast, Section 15 of the U.K LLP Act 2000 prescribes the applicability of Company law rather than partnership law. It must be noted that the UK LLP Act is, despite the name, specifically legislated as a Corporate body rather than a partnership; that is to say, it has a continuing legal existence independent of its Members, as compared to a partnership which may (in England and Wales, does not) have a legal existence dependent upon its Membership. In the U.S, however, Section 306(c) of the Revised Uniform Partnership Act (1997) (RUPA) (a standard statute adopted by a majority of the states) grants LLPs a form of limited liability similar to that of a corporation.

Status of an LLP registered in Lagos operating outside jurisdiction

The position of an LLP registered in Lagos state outside the state is that while it is regulated

by the provisions of the Partnership law of Lagos State (as amended), outside the shores of 6

the State, it will be bound by the partnership law of the corresponding State. It is submitted that it may retain the abbreviation LLP, but in practice it may not operate as an LLP outside Lagos State because there is no provision for the status of an LLP in other states in Nigeria.

An LLP registered in Lagos have two options where for instance, the partnership decides to open an office in other states of the federation in furtherance of its business objectives. The first option may be to carry on its business as a partnership albeit not as an LLP, pursuant to provisions of the Partnership Act 1890 which is still being used by most states in the federation. The other option open to such LLP is to operate as a business name. In this vein, recourse must be had to Section 81 of the Partnership law of Lagos State which as stated above allows an existing LLP to be registered as a business name.

Issuance of certificate as conclusive evidence of registration of a Limited Liability Partnership

Generally, on the authority of the case of Magbagbeola v. Sanni (supra) where it was held that the best evidence of incorporation of a company is the production of the certificate of incorporation, the provision of Section 61(3) of the Partnership Law of Lagos State raises concern as to the authenticity of a certificate evidencing registration as a limited liability partnership. This section provides that:

„„The certificate shall either be signed by the registrar or be authenticated by his official seal ‟‟

The implication of this provision is that an LLP certificate without the signature of the Registrar of limited liability partnership is sufficient to prove its authenticity. The option of either the signature of the Registrar of Limited partnerships or his official seal opens a window for forgery of the certificate. It would have been more permissible to have a combination of the signature of the Registrar along with his official seal as is practiced in other parastatals responsible for the issuance of such certificates for example the Corporate Affairs Commission and the Lands registry. There is therefore a need to amend this provision in order to avoid a situation where the authenticity of a Limited liability partnership certificate will be in doubt.

Conclusion

The amendment of the Partnership law of Lagos State to provide for the inclusion of limited liability partnerships (LLP) is quite commendable. It is expected that this new provision will engender the growth of more partnership groups who intend to place a restriction on the liability to be incurred by its partners. The LLP provision has also created a leeway for more individuals and professionals groups to aggregate their resources and at the same time limiting their liability in furtherance of their business objectives. The LLP provision is however not a perfect piece of legislation and further amendments still need to be made. The required amendments have been highlighted in the course of this write up and it is hoped that more individuals would embrace and take advantage of the provision for limited liability partnerships under the Partnership law of Lagos State 2009.