Difference between a Limited Partnership (LP) and Limited Liability Partnership (LLP)

Partnership is a formal arrangement made between two or more individuals with a view of making profit. In Nigeria, partnership was previously classified under the business name category without a corporate status. However, under the CAMA 2020, two types of partnership were created namely, Limited partnership and Limited Liability partnership. Below, we look at the meaning of these partnerships, the differences, and their advantages.

Limited Partnership: Under section 795(1) of CAMA 2020, this is a partnership arrangement with at least two (2) partners (i.e at least one general partner and one limited partner) and a maximum of 20 partners 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.

Limited Liability Partnership: Under section 746(1) of CAMA 2020, this is a partnership but one with a body corporate and perpetual succession, just like a limited liability company. It is a hybrid form that infuses two types of business; a partnership and a limited liability company. 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. Also, section 765 of CAMA 2020 provides that a partner of a limited liability partnership is an agent of the limited liability partnership and not of other parties. A partner cannot be liable directly or indirectly for an obligation carried out in accordance with the partnership agreement

Areas of differences between a Limited Partnership and Limited liability Partnership  

1. The registered names of a Limited partnership and Limited Liability Partnership must end with words “Limited partnership” or “LP” and “Limited Liability Partnership” or “LLP”.
2. There must be a minimum of two partners and while limited partnerships cannot exceed 20 partners, there is no maximum number of partners for Limited Liability partnerships.
3. Every Limited liability partnership must have at least two partners known as “designated partners” who are responsible for ensuring compliance with the provisions of the CAMA 2020 and will be liable for any contravention of the CAMA 2020 by the LLP. While a Limited partnership must have a partner known as a “general partner” who has an unlimited liability for all debts and obligations of the partnership. Other partners in a Limited partnership are the “limited partners” and their liability for the debts and obligations of the partnership is limited to the sum they contributed or agreed to contribute at the time of joining the partnership.
4. A limited liability partnership can sue and be sued in its corporate name. Limited partnership cannot sue or be sued in its corporate name alone without adding the names of partners trading under the name.

ADVANTAGES OF A LIMITED LIABILITY PARTNERSHIP

1. Protection of personal assets via limited liability.
2. Flexibility in terms of management and how profits are shared.
3. Members can be companies as well as individuals.
4. Their accounting and filing requirements are similar to the requirements of a limited liability company, such annual returns, annual accounts etc.

ADVANTAGES OF A LIMITED PARTNERSHIP

1. Protection from personal financial liability beyond the amount of their investment.
2. The ease of creating and maintaining a limited partnership.