A limited liability partnership (LLP) is a type of partnership in which the partners have limited liability for the debts and obligations of the partnership. This means that the partners are not personally liable for the partnership’s debts and obligations, and their personal assets are protected in the event of the partnership’s bankruptcy or other financial issues.
In LLP, all partners have some degree of management rights and share in the profits, but also have limited liability for the company’s debts and legal issues. It is a popular structure for professional services firms such as law firms, accounting firms, and consulting firms.
Difference between Limited Partnership, LP and Limited Liability Parntership, LLP
Limited Liability Partnership, LLP, is a partnership but one with a body corporate and perpetual succession, just like a limited liability company. An LLP is a business structure or arrangement with its own separate legal personality, distinct from the partners. Two or more companies can form an LLP. Also, individual persons and companies can form an LLP. In an LLP, the liabilities of the partners are limited to the amount agreed to be contributed by the individual partners; or what is outstanding (from that agreed amount) in the event of winding up.
However, an LP is a partnership arrangement with at least two (2) partners (i.e. at least one general partner and one limited partner) in which the liabilities of a General Partner are unlimited while the liabilities of a Limited Partner are limited to his or her undertaking in the partnership (unless he has very huge investment and takes part in the management of the partnership).
An LP is usually recommended where any of the partner(s) is or are mere sponsors of a joint business and are not or will not be partaking in the daily affairs or management of the partnership business.
An LLP shall consist of a minimum of two (2) partners (called “designated partners”) with no maximum number of partners but an LP shall have a minimum of two (2) partners (one General Partner and one Limited Partner) and maximum of twenty (20) partners. The designated partners of an LLP or General Partner of an LP are responsible for compliance with CAMA, including filing of document, returns, statement and other reports under CAMA or under the limited liability agreement.
Please note that by section 749 of CAMA, any partner may become or cease to become a designated partner in accordance with the limited liability partnership agreement.
The registered name of an LP and LLP must end with the words “Limited Partnership” or the abbreviation “LP” and “Limited Liability Partnership” or the abbreviation “LLP”, as the case may be.
15 difference between Limited Partnership and Limited Liability Partnership:
- Limited partners in a limited partnership have limited liability, while all partners in a limited liability partnership have limited liability.
- In a limited partnership, there is at least one general partner who manages the business and is personally liable for its debts, while in a limited liability partnership, all partners share management responsibilities and are not personally liable for the partnership’s debts.
- Limited partners in a limited partnership are not allowed to take part in the management of the business, while all partners in a limited liability partnership have the right to participate in management.
- Limited partners in a limited partnership do not have the right to access financial information or make business decisions, while all partners in a limited liability partnership have access to financial information and can make business decisions.
- Limited partners in a limited partnership are only liable for the partnership’s debts to the extent of their capital contributions, while all partners in a limited liability partnership are jointly and severally liable for the partnership’s debts.
- Limited partners in a limited partnership are not allowed to make loans to the partnership, while all partners in a limited liability partnership can make loans to the partnership.
- Limited partners in a limited partnership are not allowed to guarantee loans for the partnership, while all partners in a limited liability partnership can guarantee loans for the partnership.
- Limited partners in a limited partnership are not allowed to pledge their assets to secure the partnership’s debt, while all partners in a limited liability partnership can pledge their assets to secure the partnership’s debt.
- Limited partners in a limited partnership are not allowed to sign contracts on behalf of the partnership, while all partners in a limited liability partnership can sign contracts on behalf of the partnership.
- Limited partners in a limited partnership are not allowed to borrow money from the partnership, while all partners in a limited liability partnership can borrow money from the partnership.
- Limited partners in a limited partnership are not allowed to take distributions from the partnership, while all partners in a limited liability partnership can take distributions from the partnership.
- Limited partners in a limited partnership are not allowed to participate in the sale of the partnership, while all partners in a limited liability partnership can participate in the sale of the partnership.
- Limited partners in a limited partnership are not allowed to vote on the partnership’s business decisions, while all partners in a limited liability partnership can vote on the partnership’s business decisions.
- Limited partners in a limited partnership are not allowed to receive information about the partnership’s ongoing business operations, while all partners in a limited liability partnership can receive information about the partnership’s ongoing business operations.
- Limited partners in a limited partnership can be held liable for the partnership’s debts if they take part in the management of the business, while all partners in a limited liability partnership are protected from personal liability for the partnership’s debts regardless of their level of management involvement.
Requirments For Registration of LP and LLP in Nigeria
- Applicants are to submit two (2) Proposed names of the LP/LLP;
- Submission of the proposed business(es) of the LP/LLP;
- The proposed address of the registered address of the LP/LLP;
- Names and address of each partners of the LP/LLP;
- Names, phone number, email and contact addresses of the persons who are to be designated partners of the LP/LLP
- Details, phone number, email and contact of Person with Significant Control (that is person or partner holding at least 5% of the stake in the business);
- Signature specimen of the partners and persons with significant control
- The amount of contribution of each member to the partnership;
- A copy of the Partnership Agreement; and
- Any other information concerning the proposed LP/LLP as may be required by CAC from time to time.
