Partnership law in Nigeria is adapted from the English Partnership Act of 1890

What is a Partnership?

A Partnership, is a voluntary association of two or more individuals carrying on a business for the intent of making profits. A person cannot be forced to be a partner (unless by conduct he holds himself out or allows himself to be held out as a partner) or to accept another person as a partner. In forming a partnership, no real formalities are required. A partnership can be formed orally, in writing or by conduct. A maximum of 20 people are allowed in a partnership.

A Partnership is defined to include every professional or commercial venture. Every partnership must have a profit motive even though the business does not actually have to make a profit. This excludes non-profit organizations (such as associations, clubs, societies, etc.) from being seen as partnerships.

The sharing of profits is prima facie evidence of a partnership.

The Article of Partnership

It is good practice to prepare an Article of Partnership before proceeding with any business venture. the partners can agree to any term in their partnership agreement, except illegal terms. The article may be short and simple or long and complex. The following are some of the issues that should be agreed upon and properly articulated in the agreement.

The name of the partnership

The nature of business.

The principal office of business and branches (If any).

Nature and scope of the partnership

Capital contribution of each partner and bankers.

Division of profits and losses among the partners.

Withdrawal of capital.

Management of partnership - conduct and power and participation in management.

Use and application of partnership property.

Remuneration of partners.

Unanimous consent cases, major decision.

Retirement, expulsion bankruptcy, death and incapacity of a partner.

Admission of new partners.

Loan or credit to members.

Termination or dissolution of the partnership.

Any other provisions deemed relevant by the partners

Characteristics of a Partnership

A Partnership is at will and not necessarily for life.

Each partner is an agent of and principal to every other party.

A partner cannot be expelled by another partner.

Partners have unlimited liability.

A deceased partner's rights in specific partnership property vests with the remaining partners upon his death (right of survivorship).

Ownership interest may not be transferred without the consent of all the owners.

A partnership exists by mutual agreement of all the parties.

A partnership must have an intent to make profits. A partnership does not pay income tax in its own name.

Partners pay tax on their individual share of the profits of a partnership.

Types of Partners

Active Partner: Participates in all activities of a partnership.

Dormant or Sleeping Partner: A partner that does not take an active part in the operations of the partnership but share in the profit. This type of partner is typically not known by the public.

Silent Partner: A partner who is known by the public as part of the partnership but he/she does not take an active part in the operations of the partnership.

Nominal partner: A person who lends their name to a partnership without having any financial interest in it. The name is lent to the partnership for a consideration.

Secret partner: A partner that takes active part in the affairs of the company but he is not known by the public as part of owners of the partnership.

Rules that determine the existence of a Partnership:

An agreement to share in the losses of a business is strong evidence of a partnership

Co-ownership of property by joint tenancy, tenancy in common, tenancy by the entireties, joint property, community property, or part ownership does not on itself establish a partnership.

People who are not partners to each other are not partners to a third party/person (unless a partnership by estoppel is created when a person who is not a partner either makes a representation or consents to a partners representation that he is a partner).

Sharing of gross return of a business does not itself establish a partnership, whether or not the person sharing it has a joint or common right of interest in any property from which the returns are derived.

Receipt of a share of the profits of a business is prima facie evidence of a partnership.

No inference of the existence of a partnership shall be drawn shall be drawn if such profits were received in payment;

as wages of an employee or rent to a landlord,

as annuity to a widow, widower or representative of a deceased partner,

as debt owed to a creditor in installments or otherwise,

as an interest in a loan

as the consideration for the sale of the goodwill of a business or other property by installment or otherwise.

Limited Partnership:

Generally, limited partnerships (a special form of partnerships that has both limited and general partners) do not exist in Nigeria. However, limited partnerships exist in Western Nigeria and Mid Western Nigeria.
A limited partner cannot withdraw funds as long as the partnership is in existence. He/she is not personally liable for partnership debts beyond their capital contribution. He/she must not take active part in the management of the partnership. He/she must not bind the firm and not to be seen as agent. He/she can assign his shares with the approval of the general partners. He/she cannot dissolve the partnership.

Capacity of a Partner:

Every partner is an agent of the partnership for purposes of its business and an agent of every other partner concerning his/her own acts

Each partner is also a principal of every other partner concerning their acts

An infant can become a partner and is bound by partnership agreement.

He/she can repudiate while still an infant.

An infant that is a partner is not liable for trade debts of the partnership.

A person found be insane by a court of law cannot become a partner.

Liability of Partners

Every partner is liable jointly with all other partners for all the debts and obligations of the firm incurred while he is partner. If he dies, his estate is also held severally liable for debts unsatisfied. He can sue all or one of the partners (jointly or severally).

A partnership can be sued in the business name. Each partner sued can apply to join other defendants.

A partner can personally sue the firm or other partners for deceit, fraud or misrepresentation.

The partnership is jointly and severally liable (one or more of the partners can be sued separately) for breach of trust or a tort (wrong) done to a third party in the course of business if it was authorized.

The partnerships debts or liabilities are the personal debts and liabilities of each partner. Each is liable to the extent of his personal assets.

A person admitted into an existing company does not thereby become liable to the creditors of the firm for anything before he became a partner. However, he can become by novation.

A partner who retires from the firm does not cease to be liable for partnership debts or obligations incurred before his retirement.

The acts of a partner bind the firm and his partners unless:

the partner has no authority to act for the firm in that matter; and

the external party with whom he/she is dealing either knows that he/she has no authority or does not know or believe him/her to be partner (e.g expenses incurred by a partner in an unrelated business will not bind the other partners).

The authority to act on behalf of a partnership may be vested in a partner by express or implied authorization of his co-partners or the partnership agreement, or by virtue of the usual authority associated to owners of such line of business, or by the conduct of the partners in ratifying the other partner's act.

Indemnity of Partners

A partner is entitled to indemnification (i.e reimbursement) for losses, expenses and personal liabilities incurred in the discharge of the firm's business.

Partners are expected to contribute and share equally in the capital and profits of the firm and must contribute equally towards the losses of capital and otherwise, unless the partners expressly vary the ratio of contribution.

Dissolution of a Partnership

A partner has the right to withdraw and dissolve a partnership at any time but he/she may not have the right to do so.

A partnership may be dissolved by;

• An agreement of the partners.
• The death, or bankruptcy of any partner.
• Any event which makes the carrying of the partnership illegal, dissolves the partnership.
• Order of a court. Any of the partners could apply and obtain court ruling that a partnership be dissolved on specified grounds - insanity of a partner, criminal conviction, etc.
• Expiration or notice.
  subject to any agreement between the partners, a partnership is dissolved;
  • by the expiration of a stated term or purpose
  • if entered into for an undefined time, by any partner giving notice of dissolution to the others.
  • by misplaced trust and confidence

  The partners owe to each other mutual trust and confidence. Wilful or persistent breach of the partnership agreement, fraud, misrepresentation, keeping erroneous account, appropriation or stealing of partnership property, etc. can force the aggrieved partners to give notice of dissolution.

• by the business ceasing to be profitable and the partners can no longer accommodate the losses dissolution is allowed.

On dissolution each partner can give public notice and compel other partners to sign the notice papers. The dissolution of a partnership terminates the partners actual authority to enter into contracts or otherwise act on behalf of the partnership.

After dissolution and proper liquidation (sale) of the assets the proceeds are used to satisfy the debts and obligations of the partnership. Partners can agree to take a distribution in kind rather than cash. If the partnership cannot satisfy its debts and obligations the partners are personally liable.

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