Nigeria: Choices And Preferences: Corporate Versus Partnership Vehicles Under The Companies And Allied Matters Act 2020 – What Are The Relevant Business Considerations?

Pablo Picasso

Introduction

Prior to the enactment of the Companies and Allied Matters Act 2020¹ (CAMA) in August 2020, the generally available business vehicles under Nigerian regulatory framework² were: limited liability companies (LLCs) and unlimited companies (UCs);³ sole proprietorships (SPs);⁴ and partnerships.⁵ Only Lagos State, which hosts Nigeria's premier economic hub, offered Limited Partnership (LP) and Limited Liability Partnership (LLP) options, triggering remarks then, on need for "regulatory competition" in Nigeria's federal context.⁶ CAMA's provisions on LPs and LLPs have now 'suspended' or displaced (except to the extent of any lacuna in CAMA provisions), the Lagos State Partnership Law (LSPL), given the applicability of the former throughout the country.⁷ We are not aware if a comparative review of the LSPL relative to CAMA, in order to confirm, whether CAMA being later in time recorded improvements over the LSPL.⁸

Anecdotally, an oft pertinent question that intending investors or entrepreneurs ask, or indeed need to have their lawyers address, is the optimal business vehicle for their proposed venture. This would often entail a comparative analysis of the available vehicle options, vis a vis the circumstances of the proposed venture, including sectoral requirements. For example, by statutory prescriptions, only 'commercial' companies (limited by shares or unlimited), can amongst others, undertake banking or insurance business, be a pension industry player, or hold oil and gas assets.⁹ For such sectors, intending players do not require any analysis of vehicle options, in considering their entry strategy.¹⁰

However, such question is relevant for many other sectors, whilst professional services had traditionally been provided, and/or in some cases, mandated to be provided under the partnership model.¹¹ However, in line with evolving trends, the options have widened, even in some professional services.¹² Typically, the optimality considerations regarding business vehicles would be from: start-up and ongoing regulatory compliance requirements, risk management, flexibility vis a vis the investor's circumstances cum desired business objectives, and tax efficiency, etc perspectives.

Experience has shown that in making business decisions, options that prima facie appear to be more efficient and therefore potentially preferable, may end up ranking poorly after detailed analysis (including financial modelling as applicable) throw up results. Truly, businesses cannot afford to make decisions that are not 'well informed', because they lack empirical basis; consequently, the imperative of such analysis cannot be overemphasised. Sometimes, transformation of an existing business may even be necessitated after such analysis, or when the owners practically experience substantial con(s) of the business vehicle being utilised.

For example, partners in a retail business that was registered as a business name (BN) may see the need for conversion in consonance with the growth of the business; or for example, in order to enjoy the benefits of legal personality and obviate the business suing or being sued in the name of the partners. This is moreso if one or more of the partners have regular employment (say, as top management staff in an unrelated sector company). Other times, business exigencies or other circumstances may require that a private company be re-registered as public or vice versa; LLC to UC or vice versa; or even PLC to UC or vice versa.¹³

Given the new CAMA framework,¹⁴ this article discusses the key features and undertakes a comparative analysis of available business vehicles in Nigeria for investors' consideration, generally on a sector agnostic basis.

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Footnotes

* Deborah Elebiju and Pearl Ejim are (pre-Law School) Graduate Interns undertaking their National Youth Corps Service (NYSC) programme with LeLaw Barristers & Solicitors.

1. Act No. 3 of 2020.

2. Primarily comprised in the Companies and Allied Matters Act, Cap. C20, Laws of the Federation of Nigeria (LFN) 2004 (CAMA 2004). Section 869 CAMA repealed CAMA 2004.

3. See Part II CAMA 2004 (Incorporation of Companies and Incidental Matters), particularly sections 21, 22, 24, 25 and 26. The LLC or UC may be private (with maximum 50 shareholders) or public (in excess of 50 shareholders without any cap on the number of shareholders); liability may also be limited by shares (the more common vehicle for business) or by guarantee (having no share capital, and primarily used to promote charitable causes/not for profit objects). For purposes of this article, we will focus on LLCs by shares vis a vis partnership vehicles, since the company limited by guarantee (ltd/gte) is not primarily utilised for doing business, and its real comparator is incorporated trustees in Parts F and C CAMA/CAMA 2004 respectively. For a historic discussion (under CAMA 2004 and then extant regulatory framework), see Afolabi Elebiju, et al, ' "Charitable Objects": Legal and Regulatory Issues in Nigeria's Not for Profit Sector', LeLaw Thought Leadership Insights, February 2020: https://lelawlegal.com/add111pdfs/NFP.PDF (accessed 02. 04.2022).

4. Individuals can undertake businesses in their own personal capacities, impliedly by the provisions of sections 16(1),(2)(a) and (c); and 33(1)  1999 Constitution of the Federal Republic of Nigeria (1999 Constitution), and expressly under the law of contract. SPs may or may not have been registered as business names (BNs) under Part B CAMA 2004. Section 573(1) CAMA 2004 mandated registration of BNs by "every individual, firm or corporation having a place of business in Nigeria and carrying on business under a [BN]" only if "(a) in the case of a firm, the name does not consist of the true surname of all partners without any addition other than the true forenames of the individual partners or the initials of such forenames; (b) in the case of an individual, the name does not consist of his true surname without any addition other than his true forenames or the initials thereof; (c) in the case of a corporation, whether or not registered under this Act, the name does not consist of its corporate name without any addition." Thus, non-registration does not render the SP less effectual, albeit regulatory requirements, for example on providing registration certificates on the opening of bank accounts, etc effectively discourage sole proprietorships that are not registered as BNs. Also, the Personal Income Tax Act, Cap. P.8, LFN 2004 (PITA) in sections 1(a) and 36 also recognises for the purposes of PIT liability, individuals doing businesses in their own names.

5. These were partnerships (oral and written) as recognised under the applicable partnership laws of each State - whether locally enacted State Partnership Law (as in Lagos) or in the absence of which, the UK Partnership Act 1890, a statute of general application, was applicable. Understandably, being companies' legislation, CAMA 2004 did not have substantive provisions for partnerships, except that they may also be registered as BNs: section 573(1)(a). Section 3(1) Partnership Law, Cap. P1, Laws of Lagos State 2003 (LSPL) defines partnership as "the relationship which subsists between persons carrying on business in common with a view to profit." See also section 3(2) exclusions of business relations that do not constitute partnerships under it - companies/associations formed under CAMA or other written law. Notably, section 19 CAMA 2004 prohibited partnerships of more than 20 persons, upon the pain of a daily fine on each person involved, during the continuance of any breach. Unless the relevant partnership deeds made specific provisions, the presumptions under the Partnership Laws will apply - for example that death of a partner constitutes dissolution of the partnership, or that a partner is the agent of all other partners. Cf. section 762(1) CAMA: "Except as otherwise provided by this Act, the mutual rights and duties of the partners of a limited liability partnership, and the mutual rights and duties of a limited liability partnership and its partners, shall be governed by the limited liability partnership agreement between the partners, or between the limited liability partnership and its partners." Emphasis supplied. Note that section 762(4) applies the provisions of 15th Schedule CAMA in the absence of any agreement. In Lagos State, there were two additional variants of partnerships - LP was the forerunner before LLP was introduced in 2009 vide the Partnership (Amendment) Law No. 6 of 2009. Pre-CAMA, LPs and LLPs in Lagos State also registered as BNs; thereby being subject to regulation by the Corporate Affairs Commission (CAC) and the Lagos State's LP/LLP Registry. Typically, CAC registration preceded Lagos State Partnership Registry's.

6. ".In the USA where there is 'regulatory competition', States actively compete to attract investments, especially in being the locus of incorporation of companies. 'Thankfully' for the CAC (courtesy, the Exclusive List of the 1999 Constitution), there is no such competition for companies incorporation. Lagos is to be commended for taking the partnership vehicle to another level through provision for LP and LLP options in its Partnership Law. Other States may emulate Lagos to capture a piece of the business start-up compliance market. Absent specific sectoral requirements, businesses may be organized other than as companies, and partnerships [of natural persons] (and their employees) are taxable under PITA helping to shore up States' IGR."  See Afolabi Elebiju, 'Musings: Nigerian Business Landscape Improvement Issues', LeLaw Thought Leadership, p. 2: https://lelawlegal.com/add111pdfs/Musings-on-Nigerian-Business-Landscape-Improvement-Issues1.pdf (accessed 01.04.2022). Article originally published as 'Why Government Must Adopt a Business Mindset.' in 'Taxspectives by Afolabi Elebiju', ThisDay Lawyer, 29.05.2012, p.7

7. See Attorney General of Ogun State v. Aberuagba [1985] 1 NWLR (Pt.3), 395. For a robust discussion of the  relationship between Federal and State legislation including the doctrine of covering the field, see Afolabi Elebiju and Ayo Fadeyi, 'Tussles: A Review Of Attorney General Of Lagos State v. Eko Hotels & Anor (2018) 36 TLRN 1', LeLaw Thought Leadership Insights, May 2019, pp. 3-5: https://lelawlegal.com/add111pdfs/AG-vs-Eko-Hotels.pdf (accessed 04.04.2022). One query though, is whether the National Assembly is competent to legislate on LPs? This is because Items 32 and 62(f), Part I (Exclusive Legislative List), 2nd Schedule 1999 Constitution covers "incorporation, regulation and winding up of bodies corporate, other than co-operative societies, local government councils and bodies corporate established directly by any Law enacted by a House of Assembly of a State" and "Trade and commerce - in particular registration of business names". It is trite that whatever is not listed in the Exclusive and Concurrent Legislative Lists is a residual matter that only the States can legislate on. Consequently, since LPs are not "bodies corporate" given absence of legal personality and perpetual succession like LLPs (vide section 746 CAMA), should they not be subject to only State Law? One counter-argument would be that the National Assembly has legislative competence over "trade and commerce". However, we believe that the generality of "trade and commerce" has been narrowed down by the other provisions of Item 62, especially the "in particular" before listing specific topics for federal legislative action. Also Item 32 only mentioned corporate bodies, and the non-corporate body considered for further inclusion in 62(f) was BNs. This is supported by established rules of statutory interpretation: expressio unius est exclusio alterius (express mention of a thing is the exclusion of others not mentioned) and the esjudem generis rule (general words are qualified by subsequent specific words). There is a possibility that aggrieved States (like Lagos that already had LP provisions in its LSPL) could approach the courts to hold that CAMA provisions on LPs are ultra vires federal legislative powers as was successfully canvassed in the Value Added Tax (VAT) litigation decisions in A-G Rivers State v. FIRS & A-G Federation (2021) 61 TLRN 1; and Ukala v FIRS (2021) 56 TLRN 1. However, both cases are currently on appeal.

8. Incidentally, section 808 CAMA provides that "Subject to the provisions of this Act, the provisions of the Partnership Act 1890, except so far as they are inconsistent with the express provisions of this Act, shall apply to [LPs]."

9. See: section 2(1) Banks and Other Financial Institutions Act No. 5 of 2020 - "No person shall carry on any banking business in Nigeria except it is a company duly incorporated in Nigeria and holds a valid banking licence issued under this Act"; section 3 Insurance Act, Cap. I17, LFN 2004 - "No person shall commence or carry on any class of insurance business in Nigeria except- (a) a company duly incorporated as a limited liability company under the [CAMA]; (b) a body duly established by or pursuant to any other enactment to transact the business of insurance or reinsurance"; sections 60(1)(a) and 62(a) Pension Reform Act No. 4 of 2014 require prospective Pension Fund Administrators (PFAs) and Pension Fund Custodians (PFCs) to be companies incorporated under CAMA; section 273(1) Petroleum Industry Act No. 6 of 2021: "any person, other than a company, who engages in upstream petroleum operations either on his own account or jointly with any other person, or in partnership with any other person with a view to sharing the profits arising from the operations commits an offence." Cf. in pari materia provisions of section 24(1) PPTA. Cf. the Nigerian Communication Commission's 'Licensing Application Process' lists amongst "Class License Application Requirements", "Certificate of Incorporation or Registered [BN]"; whereas "Individual License Application Requirements" includes only "Certificate of Incorporation", suggestive that only corporate applicants are eligible. See: https://www.ncc.gov.ng/licensing-regulatory/licensing/licensing-procedures#individual-license; and   https://www.ncc.gov.ng/licensing-regulatory/licensing/licensing-procedures#class-license. However the NCC's 'List of Lisensees' (sic) website subpage features mostly companies, but also several BNs (with "Enterprises" and "Ventures"  as part of their names): https://www.ncc.gov.ng/licensing-regulation/licensing/licensees-list#list-of-class-category-licensees accessed o4.04.2022).

10. For a related discussion, see generally Afolabi Elebiju, 'Synchronisations: Size Categorisations under Nigerian Companies and Tax Legislation', LeLaw Thought Leadership Reflections, August 2021: https://lelawlegal.com/add111pdfs/AE_-_Synchronisations_Companies_Size_3.pdf (accessed 01.04.2022).

11. See for example, Rule 5(5) Rules of of Professional Conduct in the Legal Profession 2007 as amended stipulates that "It shall be unlawful to carry out legal practice as a corporation." Emphasis supplied. Also, Rule 5(1) forbids lawyers from forming partnership to practice law with non-lawyers or lawyers not licensed to practice in Nigeria.

12. For example, Principle 1.1.7, 'Nigerian Institute of Architects Code of Professional Conduct and Ethics', (undated), provides that: "Members are at liberty to engage in any activity, whether as Proprietor, Director, Principal, Partner, Manager, Superintendent, Controller or Salaried Employee of, or consultant to, anybody, corporate or unincorporated or in any other capacity provided that their conduct complies with the provisions of this Code." Emphasis supplied. See: http://sdngnet.com/Files/Lectures/FUTA-ARC-807-Professional_ Practice_and_Procedure/CD%202013-2014/NIA%20Code%20of%20Professional%20Conduct%20and%20Ethics. pdf (accessed 04.04.2022). Cf. Nigerian Institution of Estate Surveyors and Valuers (NIESV), 'List of Firms', at: https://niesv.org.ng/registered_firms.php?currentpage=1 (accessed 04.04.2022), which features mostly regular partnerships and SPs/BNs.

13. See section 55 and other provisions of Chapter 2 CAMA.

14. See Parts B, C, D and E (together with respective/referenced Schedules for Companies, LLPs, LPs and BNs), respectively. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.