In the ever-evolving landscape of business structures, the Limited Liability Partnership (LLP) has emerged as a popular choice for many professionals and entrepreneurs.

A Comprehensive Guide to Limited Liability Partnerships (LLPs)

This guide aims to provide you with a deep understanding of LLPs, their benefits, formation process, and key considerations.

What is a Limited Liability Partnership (LLP) Business?

A Limited Liability Partnership (LLP) in Nigeria is a corporate body with a legal personality distinct from its partners (members). It is incorporated by registration under the Companies and Allied Matters Act (CAMA) 2020, which introduced the LLP framework in Nigeria.

An LLP in Nigeria shares the characteristics of both a limited company and a traditional partnership.

Like a limited company, the LLP:

  1. Is owned by its partners – The partners collectively own the LLP.
  2. Operates as a separate legal entity – The LLP can own property, enter into contracts, and sue or be sued in its name.
  3. Provides limited liability to its partners – Partners are only liable for the LLP’s obligations up to the amount of their contributions to the partnership.

The LLP itself is responsible for its obligations and debts, while partners' liability is limited to their capital contributions. However, in certain situations, especially during insolvency, partners may become liable for the LLP’s debts.

Like a traditional partnership, an LLP can be managed directly by its partners without the need to appoint directors or chief executives. This structure allows partners to take an active role in the daily management of the firm. By "partnership," we mean an association of two or more people formed for profit, governed in Nigeria by the Partnership Act.

A key difference between an LLP and a limited company lies in taxation. An LLP does not pay corporate tax as a business entity. Instead, the income from the LLP is passed on to the partners, who then pay personal income tax on their respective shares of the profits.

In many other respects, an LLP in Nigeria closely resembles a private limited company.

An LLP, as a business entity, has unlimited capacity, meaning it can carry out any lawful business to make a profit. This can include commercial activities such as trading, as well as professional services like legal or accounting practices. However, it is important to note that LLPs are not suitable for not-for-profit or charitable activities.

This structure is particularly advantageous for professionals and small business owners seeking a flexible business model while enjoying the benefits of limited liability protection.

We offer a range of services to make it easy for you to get started, from facilitating registration with the Corporate Affairs Commission (CAC) to obtaining your Tax Identification Number (TIN). Our comprehensive business support will ensure you have everything you need to succeed.

Key Features of a Limited Liability Partnership (LLP)

How does a Limited Liability Partnership (LLP) Work?

1. Limited Liability Protection:

One of the most significant features of an LLP is the limited liability protection it offers to its partners. This means:

  • Partners are not personally liable for the debts and obligations of the LLP.
  • A partner's assets are protected from claims arising from the negligence or misconduct of other partners.
  • The liability of each partner is generally limited to their investment in the business.

However, it's important to note that partners may still be held liable for their negligence or malpractice.

 

2. Flexible Management Structure:

Unlike corporations with rigid hierarchies, LLPs offer a more flexible management structure:

  • Partners have the freedom to actively participate in the management of the business.
  • Decision-making can be collaborative, with each partner having a say in the business operations.
  • The partnership agreement can define roles, responsibilities, and decision-making processes according to the partners' preferences.

This flexibility allows for a more dynamic and responsive business operation, tailored to the specific needs of the partners and the industry.

 

3. Pass-Through Taxation:

LLPs benefit from pass-through taxation, similar to general partnerships:

  • The LLP itself is not taxed as a separate entity.
  • Profits and losses "pass-through" to the individual partners.
  • Partners report their share of the LLP's income or losses on their tax returns.
  • This approach avoids the double taxation often associated with corporations.

The tax treatment can result in significant savings and simplify the overall tax process for the business.

 

4. Perpetual Existence:

An LLP has the feature of perpetual existence, which means:

  • The LLP can continue to operate regardless of changes in partnership.
  • If a partner leaves, dies, or becomes incapacitated, the LLP can continue its business operations.
  • This continuity provides stability and makes LLPs attractive for long-term business planning.

 

5. Separate Legal Entity:

An LLP is recognized as a separate legal entity from its partners:

  • It can own property, enter into contracts, and sue or be sued in its name.
  • The LLP can continue to exist even if the original partners leave or new partners join.
  • This separation provides additional protection and clarity in legal and business matters.

 

6. Professional Autonomy:

LLPs are particularly popular among professional service firms because they offer:

  • The ability for professionals to retain their autonomy while working in a collaborative environment.
  • Protection from liability for the actions of other partners is crucial in high-risk professions.
  • The opportunity to pool resources and expertise without sacrificing individual professional identity.

 

7. Transparency and Accountability:

LLPs are required to maintain a high level of transparency:

  • They must file annual returns and financial statements with the appropriate regulatory bodies.
  • This requirement ensures accountability and provides valuable information to stakeholders.
  • The level of disclosure can vary depending on the jurisdiction and the size of the LLP.
See also  Overview of Companies and Allied Matters Act (CAMA) 2020

 

8. Ease of Formation and Maintenance:

Compared to corporations, LLPs are generally easier to form and maintain:

  • The formation process is often simpler and less expensive than incorporating.
  • There are typically fewer ongoing compliance requirements.
  • Changes to the partnership structure can usually be made more easily than in a corporation.

 

9. Flexibility in Profit Sharing:

LLPs offer significant flexibility in how profits (and losses) are distributed among partners:

  • The partnership agreement can specify various profit-sharing arrangements.
  • Distributions can be based on factors such as capital contribution, work performed, or any other agreed-upon criteria.
  • This flexibility allows for fair compensation aligned with each partner's contribution to the business.

 

10. Access to Capital:

While not as extensive as corporations, LLPs do have some advantages in raising capital:

  • New partners can be admitted, bringing in fresh capital and expertise.
  • The limited liability feature can make the LLP structure attractive to potential investors.
  • Some jurisdictions allow LLPs to have corporate partners, potentially opening up additional funding avenues.

 

11. International Recognition:

Many countries recognize the LLP structure, which can be beneficial for businesses operating internationally:

  • It can simplify cross-border transactions and partnerships.
  • The familiar structure can make it easier to establish business relationships in different countries.
  • However, it's crucial to understand that LLP regulations can vary significantly between jurisdictions.

 

12. Scalability:

LLPs offer a structure that can grow with the business:

  • New partners can be added as the business expands.
  • The flexible management structure allows for adaptation as the organization grows.
  • The LLP can evolve into other business structures if needed, though this process can be complex and should be carefully considered.

Advantages of Forming a Limited Liability Partnership

LLPs have several advantages that make them popular:

  • Limited Liability Protection:

One of the most significant advantages of an LLP is that it protects the personal assets of its partners. If the LLP incurs debts or faces legal claims, the partners are only liable for the amount they invested in the business, safeguarding their personal finances from business liabilities.

  • Enhanced Credibility:

Registering as an LLP demonstrates a commitment to professionalism and legitimacy. This can enhance your business’s reputation, making it more appealing to clients, investors, and financial institutions.

  • Pass-Through Taxation:

An LLP is treated as a pass-through entity for tax purposes, meaning that profits and losses are reported on the partners' individual tax returns. This avoids the double taxation that corporations often face, allowing partners to benefit from favorable tax treatment.

  • Business Continuity:

LLPs enjoy perpetual succession, meaning the business can continue to operate independently of changes in ownership or the departure of partners. This ensures stability and continuity in operations.

  • Ease of Expansion:

Adding new partners to an LLP is straightforward and does not disrupt the existing business structure. This flexibility makes it easier for businesses to grow and adapt as needed.

  • No Minimum Capital Requirement:

Unlike some business structures that require a minimum capital investment, there is no mandatory minimum capital for starting an LLP in Nigeria. This makes it accessible for entrepreneurs with limited initial funds.

  • Improved Financing Opportunities:

LLPs are often viewed as more formal and reliable than traditional partnerships, making it easier to secure loans and attract investors. The limited liability feature can also make lenders more willing to extend credit.

  • Exclusive Business Name Use:

Registering an LLP protects the business name from being used by others, providing a unique identity in the marketplace.

  • Attractive for Strategic Partnerships:

LLPs facilitate collaboration between professionals or businesses, allowing them to pool expertise and resources while limiting their liabilities. This is particularly beneficial in fields like law, accounting, and consulting.

How to Register a Limited Liability Partnership (LLP) in Nigeria

You can register a Limited Liability Partnership (LLP) in Nigeria by submitting the required application to the Corporate Affairs Commission (CAC) either through electronic filing.

The electronic method is now the most commonly used, providing a faster and more convenient process. If you want to register an LLP, you can handle the entire registration process yourself or use the services of our LLP formation service.

 

Steps and Information Required for LLP Registration

To successfully register an LLP in Nigeria, you will need to provide the following details:

  1. Name of the LLP: The LLP’s name must end with “LLP” or “Limited Liability Partnership.” It must not be identical to an already registered company or partnership, and it should not contain sensitive or offensive terms. You can check name availability on the CAC portal.
  2. Registered Office Address: The address where official correspondence will be sent. This is required to be within Nigeria.
  3. Details of Members and Designated Partners: Information about all partners, including at least two designated partners who will be responsible for compliance with legal and regulatory obligations.
  4. Details of Persons with Significant Control (PSCs): Provide information about individuals or entities with significant control over the LLP, such as those holding more than 25% of the voting rights or shares.
  5. Statement of Compliance: A declaration that the LLP complies with all legal requirements under the Companies and Allied Matters Act (CAMA) 2020.

Each proposed member and designated partner must give their consent to act in that capacity. Likewise, any person listed as a Person with Significant Control (PSC) must be aware that their details are being provided during the registration.

 

Certificate of LLP Incorporation

Once the LLP is incorporated, it will receive a Certificate of Incorporation from the CAC. This certificate will include:

  • The full name and registration number of the LLP.
  • The date of incorporation.
  • The registered office address of the LLP.
See also  Requirements for One-Person Company Registration

 

Publicly Available Information of LLP

Some information about the LLP will be publicly accessible on the CAC portal. This includes:

  • The name of the LLP.
  • The registered office address.
  • The LLP’s registration number and incorporation date.
  • Filing history and due dates for annual returns and other documents.
  • Details of active and resigned members, including designated partners, with their date of birth, country of residence, and correspondence address.

This registration process ensures that the LLP is legally recognized in Nigeria and provides transparency for the public.

Members in a Limited Liability Partnership (LLP)

Partners in a Limited Liability Partnership (LLP) in Nigeria are referred to as “members.” These members are not the same as “shareholders” in company law, and their interests in the LLP do not represent “shares.” Instead, they are individuals or entities that have a stake in the partnership's profits and management.

Each member commits to making a contribution to the LLP, which could be in the form of cash, assets, or services. The amount contributed typically reflects the member’s participation rights in the LLP. There are no minimum capital requirements for the contribution made by members.

 

Minimum Membership Requirements
An LLP must have at least two members, who can either be individuals or corporate entities. These members can be of any nationality and are not required to reside in Nigeria.

The LLP structure allows flexibility, so new members can join at any time after the LLP is incorporated. There is also no upper limit to the number of members an LLP may have.

 

Changes in Membership
Any changes in the LLP’s membership must be reported to the Corporate Affairs Commission (CAC). This includes the following:

  • Appointment of a new member or
  • Resignation or removal of an existing member.

Additionally, changes to a member’s details, such as their name, service address, or country of residence, must also be updated. The LLP is required to notify the CAC within 14 days of any such changes.

This reporting ensures that the LLP’s records remain accurate and up to date with the regulatory authorities.

Designated Partners in a Limited Liability Partnership (LLP)

Designated members in a Limited Liability Partnership (LLP) in Nigeria have the same rights as any other members, but they bear additional responsibilities for ensuring the LLP complies with its legal and statutory obligations.

Designated members are essentially responsible for the LLP's statutory compliance with the Corporate Affairs Commission (CAC) and other regulatory authorities.

Responsibilities of Designated Members

Designated members are responsible for the following:

  1. Submission of Annual Returns: Filing the LLP’s annual returns and financial statements with the CAC within the required time frame.
  2. Notifying CAC of Changes: Reporting any changes in the LLP to the CAC within 14 days. These changes may include:
    • LLP’s name.
    • Registered office address.
    • Nature of the business.
    • Members’ details (e.g., name, address, country of residence).
    • Details of Persons with Significant Control (PSCs).
  3. Maintaining Records: Keeping accurate accounting records, including income, expenses, and assets, which can be inspected by the authorities if necessary.
  4. Maintaining Registers:
    • Register of members.
    • Register of Persons with Significant Control (PSC register).
  5. Appointing Auditors: Appointing an auditor if required by law or based on the LLP's operational size.
  6. Tax Compliance:
    • Registering the LLP with the Federal Inland Revenue Service (FIRS) for self-assessment and ensuring that the partnership tax returns are filed on time.
    • Registering for Value Added Tax (VAT) if applicable and ensuring timely submission of VAT returns and payment of VAT to FIRS.
  7. Dissolution or Insolvency: Acting on behalf of the LLP in the event of dissolution or insolvency proceedings.

 

Minimum Requirement for Designated Members

Each LLP in Nigeria must have at least two designated members. If the LLP has only two members, then both are automatically deemed designated members.

The LLP’s partnership agreement can specify the process by which a member becomes or ceases to be a designated member, provided that the LLP continues to meet the minimum requirement of two designated members at all times.

Designated members play a critical role in ensuring the LLP remains compliant with Nigerian regulations and maintains proper governance.

Persons with Significant Control (PSCs) in an LLP

An LLP in Nigeria is required to maintain a register of Persons with Significant Control (PSCs), whose details must be provided to the Corporate Affairs Commission (CAC). This information is publicly accessible through the CAC's portal.

Who is a Person with Significant Control (PSC)?

In the context of an LLP, a Person with Significant Control (PSC) is any individual or entity that meets one or more of the following conditions:

  1. Holds Rights Over More Than 25% of the Surplus Assets: This applies in the event of the LLP’s winding up or liquidation.
  2. Holds More Than 25% of Voting Rights: Directly or indirectly controls more than a quarter of the voting power within the LLP.
  3. Appoints or Removes Management: Has the direct or indirect right to appoint or remove the majority of those involved in the management of the LLP.
  4. Exercises Significant Influence or Control: Holds the authority to exercise, or effectively exercises, significant influence or control over the LLP’s operations or decision-making processes.
  5. Control Over a Trust or Firm: Has the right to exercise, or exercises, significant influence or control over the activities of a trust or firm that is not a legal entity but would meet any of the first four conditions if it were an individual.
See also  How to Calculate PAYE Tax in Nigeria

 

Public Disclosure

The information regarding PSCs, including their name, date of birth, nationality, and level of control, must be kept up to date and reported to the CAC. This ensures transparency in the ownership and control of LLPs in Nigeria. The PSC information will be publicly available through the CAC database for public inspection.

Maintaining an accurate PSC register is a legal requirement, and failing to comply with the obligations can result in penalties for the LLP and its members.

LLP Accounts and Audit Requirements in Nigeria

LLPs in Nigeria are required to maintain proper accounting records and submit annual financial statements for each financial year. This ensures transparency and compliance with the Nigerian regulatory framework.

 

Accounting Records

The LLP’s accounting records must:

  • Show and explain the transactions of the LLP.
  • Disclose the LLP’s financial position with reasonable accuracy.
  • Enable members to ensure the accounts comply with statutory requirements.

The accounting records must be kept at the LLP's registered office or another location deemed appropriate by the members. These records should always be open for inspection by the members and must be preserved for a minimum of 3 years.

 

Annual Accounts

The annual accounts must be prepared according to Nigerian Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). These accounts must be approved by the members and signed by a designated member before submission to the CAC.

 

Small and Dormant LLPs

Small or dormant LLPs are subject to fewer disclosure requirements. An LLP qualifies as small if it meets two or more of the following criteria:

  • Turnover of no more than ₦1 million.
  • Balance sheet total of no more than ₦5 million.
  • Fewer than 50 employees.

Such LLPs may be exempt from audit requirements if they qualify as small.

 

Audit Exemption

LLPs that qualify as small or dormant are generally exempt from the audit requirement. However, those that do not meet the exemption criteria are subject to a mandatory annual audit.

LLP Taxation in Nigeria

LLPs in Nigeria are not subject to corporation tax. Instead, they are treated as partnerships for tax purposes. This means that the profits of the LLP are taxed at the level of the individual members, rather than the entity itself.

 

Tax Treatment of LLP Profits:
Each member of the LLP is taxed based on their share of the profits, whether or not the profits have been distributed. Corporate members of the LLP pay corporate tax, while individual members are taxed as self-employed individuals, paying personal income tax.

 

VAT Requirements
For VAT purposes, an LLP is considered an independent taxpayer. LLPs must register for Value Added Tax (VAT) if their annual taxable turnover exceeds the statutory threshold. The LLP is responsible for filing VAT returns and paying VAT to the Federal Inland Revenue Service (FIRS).

Why Choose an LLP?

LLPs are ideal for professional services firms, small businesses, and startups that require a flexible business structure with limited liability protection. This structure is particularly attractive for accountants, lawyers, consultants, and other professionals who wish to collaborate in a shared business venture without risking personal assets.

Some of the main reasons businesses opt for LLPs include:

  • Liability Protection: Shield personal assets from business liabilities.
  • Management Flexibility: Partners have the freedom to manage the business as they see fit.
  • Tax Efficiency: Pass-through taxation can reduce the tax burden on the business.
  • No Minimum Capital: Easier to start compared to entities that require significant capital investment.
  • Perpetual Succession: Ensures continuity of the business even if partners change.

Documents Issued upon LLP Registration

After successfully registering an LLP, the following documents will be issued:

  • Certificate of Incorporation: This serves as conclusive evidence of the LLP's formation.
  • Status Report: A report detailing the LLP's registration status.
  • Partnership Agreement: A copy of the partnership agreement filed during the registration process.
Limited Liability Partnership Company Registration

Conclusion

The features of a Limited Liability Partnership (LLP) make it an attractive option for entrepreneurs and professionals seeking a flexible and secure business structure. With benefits such as limited liability protection, pass-through taxation, and enhanced credibility, an LLP provides a robust framework for conducting business while safeguarding personal assets.

Are you ready to register your LLP in Nigeria? Contact our team for expert guidance and support throughout the registration process.

Register your Limited Liability Partnership (LLP) Business in Nigeria

Here's how SplashDict's team of CAC-accredited consultants can help:

  • LLP Registration: Nigerian Limited Liability Partnership (LLP) Registration with the CAC.

  • Documentation Preparation: Our experts handle all necessary registration documents.

  • Business Name Search and Reservation: We check availability and secure your desired LLP name.

  • Submission and Processing: We ensure all requirements are met and manage the submission process for efficient processing by the CAC.

  • CAC Filing Fee Included: No hidden costs, everything is included in the package price.

  • Tax Identification Number (TIN): Issued upon incorporation.

  • Delivery of documents: Upon registration, we provide Documents including - the Certificate of Registration, Approved Partnership agreement, and Status Report.

  • Secretarial Support: Ongoing assistance with statutory requirements and filings.

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