Fredrick O. Omatseyi, Esq.
Jeremiah E. Aneji. Esq.
Margaret E. Ogbonna
Partnership as a concept has relevance across all spectrums of society. It would feature prominently in business/commercial transactions with several testaments in the success stories of leading enterprises and successful ventures. It entails collaboration between two or more persons or between businesses and government entities to prosecute a common cause to jointly partake in some form of benefit/profit, as the case may be. The Blacks Law Dictionary defined it to mean “that voluntary contract between two or more competent persons to place their money, effects, labor, and skill or all of them, in lawful commerce or business, with the understanding that there shall be a proportional sharing of the profits and losses between them.”
The above definition notwithstanding, the extent of a partner’s interest in a joint venture/project is strictly determined by the nature and terms of the partnership contract and may sometimes be implied by law. At the same time, some partnerships may require partners to manage the business concern, while others may only allow for limited participation. (section 746 of the Companies and Allied Matters Act 2020).
In recent times, the successful partnership has been the bedrock upon which greater heights were attained in innovative products and services. It has been proven to consistently provide the push needed by Small and Medium Enterprises (SMEs), as witnessed in the success stories of global brands like Facebook and Twitter. On a larger scale it provides a lifeline for developing nations, like Nigeria to pull the funds it would require to close its infrastructural deficits through instruments such as the Build, Operate and Transfer (BOT) policies, Public-Private Partnerships (PPP) policies and other concessionary schemes. It is therefore essential to note that no society, nation or economy can successfully thrive in the absence of a conscious policy trust on the part of government to encourage and uphold the structural integrity of commercial partnerships/collaborations especially where it is for commercial and investment purposes.
In this article we shall briefly examine partnerships in Nigeria and its goals, to achieve this we shall be looking at the following:
- The Inevitability of Partnership Factor In boosting Nigeria’s Economic Growth.
- The Enabling Structures for Business/Investment Partnership in Nigeria.
- The Pitfalls and challenges associated with Partnership.
- An overview of the government’s Public Private Partnership Drive in Fundingits Capital Intensive Projects.
- THE INEVITABILITY OF PARTNERSHIP FACTOR IN BOOSTING NIGERIA’S ECONOMIC GROWTH.
It is without doubt that Nigeria is blessed with human resources and ingenuity that despite the limited resources available to support startups and businesses in general. Just as we already pointed out, these innovators, entrepreneurs and visionaries would spring and thrive more in an ecosystem that supports partnerships in its diverse and complex nature, active for investors.
For SMEs across Nigeria, the major challenge has been the difficulties faced in getting access to funds from the mainstream financial institutions to boost productivity or meet the everyday demands of their businesses. According to the Credit Bureau Association of Nigeria (CBAN), despite efforts by the Central Bank of Nigeria (CBN), credit bureaus, and financial institutions to make loans accessible to Micro Small and Medium Enterprises (MSMEs), only four per cent out of the 40 million MSMEs in the country have access to credit¹. To tackle this challenge, entrepreneurs and businesses are beginning to look at the viability and prospects of partnering with private investors, either as general business partners or limited partners whose interest is solely in profit taking as against participating in the day-to-day management of the venture.
On the part of the government, in recent times international financial lenders like the World Bank, the International Monetary Fund, The African Development Bank, the Chinese Exim bank² etc are beginning to raise concerns on whether the recent debt profile of Nigeria is sustainable, especially at this point where she desperately needs funding to meet her infrastructural deficits³. The government has acknowledged the undeniable reality that without a robust public-private partnership funding system, the country’s infrastructural deficit would never be eradicated. Having acknowledged this, the authorities have recently taken steps to allow private investors to partner with it in executing capital-intensive infrastructural projects that would benefit the government and the people.
As for SMEs, the irony in all of these is that while the mainstream finance houses are unwilling to support small businesses, numerous private investors are willing to invest in secured viable ventures either as active investors or willing partners as retirees, public servants and top-notch businessmen and women looking for opportunities to diversify their investments.
The problem now becomes what provisions or policy structures have been put in place to encourage, enable, secure and regulate these investment partnership systems. In attempting to provide answers we shall be looking at the enabling instruments in the Nigerian economy that provides for partnerships and the likely pitfalls one needs to look out for in partnership transactions.
- ENABLING ENVIRONMENT FOR PARTNERSHIPS IN NIGERIA
The key policy trust of any government is to create an enabling environment for innovators, entrepreneurs and business entities to thrive and actualize their potential which in the long run cumulate into a more prosperous society. The accumulation and effective implementation of these policies is often published under the Ease of Doing Business International Ranking System of the World Bank⁴.
The Federal government has in recent times and by virtue of the Companies and Allied Matters Act, (CAMA) 2020 introduced new dimensions of business entities known as Limited Liability Partnership and Limited Partnership as seen in the provisions of section 746 and 795 respectively. This is a direct response to the yearning of entrepreneurs, businesses and investors who are willing to not just invest in a business by merely subscribing to the shares of such companies but would want a partnership structure where their benefits go beyond merely collecting dividends. It is also worthy of mention, that prior to these innovations, the legal frame work for partnership were the laws passed by state legislature such as the partnership law of Lagos state or the UK partnership Act of 1890 which was applicable to some states in Nigeria as a statute of general application. While these laws deal with the implied obligations and duties in partnerships, it does not cloak such partnership with a corporate personality/structure as seen in the innovations provided for under the new CAMA (Section 746 of the companies and Allied Matters Act, 2020).
For the purpose of this article, we would state the exceptional features this creation of status affords intending and existing partners in solidifying their common business interest.
2.1. Limited Liability Partnership(LLP)
A limited liability Partnership is a body corporate formed and incorporated under CAMA 2020 with separate legal personality from its partners with perpetual succession. It can sue and be sued in its name and can acquire, own, hold and develop or dispose of property, whether moveable or immoveable, tangible or intangible.
Generally, partners have limited personalities, i.e. their personal assets cannot be utilized or legally sequestrated in settlement of debts and liabilities. Consequently, the liability of a partner will be met out of the assets of the LLP. However, according to the Act, in instances where the LLP or any of its partners act with the intent to defraud creditors of the LLP and partners who acted in that manner shall be unlimited for all or any of debts or other liabilities of the LLP.
LLPS are expected to be registered with the Corporate Affairs Commission (CAC) in the manner prescribed under the Act with at least two designated partners, one of whom must be resident in Nigeria. The designated partner will be responsible for fulfilling the compliance obligations under the Act and will be liable to all penalties imposed on the limited liability partnership for any contravention of those provisions.
2.2. Limited Partnership
By definition, a limited partnership has at least one general partner and at least one limited partner. The general partner or partners manage the business on a day-to-day basis. LPs are usually used by real estate investors, hedge funds and investment partnerships, family partnerships, etc. usually, the partners provide capital in exchange for the interests in the profits and do not take part in the management of the firm or partnership, nor do they have powers to bind the partnership. However, they may inspect books and examine the prospects of the firm.
CAMA 2020, provides that LP shall consist of one or more persons called general partners, who shall be liable for the debts and obligations of the firm beyond the amount so contributed or agreed to be contributed. LPs are not restricted individuals, as corporate entities can become limited Partners and negotiate agreements with general partners on the management of the partnership.
It is important that unless otherwise agreed in writing by the partners, a limited partner shall not, during the continuance of the partnership, either directly or indirectly, draw out or receive back any part of his contribution. However, the limited partner will still be liable for the debts and obligations of the partnership up to the amount so drawn out to be received back.
If a limited partner takes part in the management of the partnership business, he is liable for all debts and obligations of the firm as though he were a general partner. Considering that LPs are regarded as a separate entity from the actual individual partners by the internal revenue service for tax purposes. LPs are not taxed but the partners are taxed as individuals on profits from the partnership.
- PITFALLS INCIDENTAL TO PRIVATE PARTNERSHIP
Below are some of the pitfalls incidental to Partnership transactions:
3.1. No clearly defined roles or responsibilities.
Many business partnerships often start off with assumptions about what each other should do. Yet not having clear roles and responsibilities is often the main cause of frustration and disappointment between partners. Roles can change over time, but that doesn’t mean you can be hazy at the start.
Having clearly defined tasks not only ensures that the business runs smoothly, it will also help both of you to set some measurable goals and be accountable for them.
3.2. Not knowing each other’s working style
People approach tasks differently. Some people like to work on multiple projects at a time while others are very focused on a single task; some people enjoy teamwork while others prefer working independently. Add the complexity of individual personalities and it’s easy to see why without a good understanding of each other’s working style, misunderstandings and conflicts can arise quickly between two partners.
Besides working style, it is equally, if not more important to know how your partner handles challenges. Unless both of you can weather storms together, it will be hard to keep the business going for the long term
3.3. No written contract
We trust our friends and think that it is unnecessary to have a contract when we go into a partnership with them. But a business relationship is not a friendship and they can’t be managed in the same manner.
3.4. Not having a clear exit plan
Nothing remains stagnant. You or your partner may need to exit the business for various reasons but unless you have spelt out the terms clearly in the beginning, contentions can arise. For example, who can you sell your share of the business to, and at what price can you buy back your partner’s share? What happens if your partner becomes incapacitated or passes away? Would you be comfortable working with your partner’s spouse or friend if they take over?
We can never predict what the future holds. Having an exit strategy planned out in advance can make a difficult situation manageable.
- AN OVERVIEW OF THE PUBLIC PRIVATE PARTNERSHIP DRIVE OF GOVERNMENT IN FUNDING ITS CAPITAL INTENSIVE PROJECTS. 00
Public Private Partnership is a contractual arrangement which is formed between public and private sector partners which involve the private sector in the development, financing, ownership, and or operation of a public facility or service. In such a partnership, public and private resources are pooled and responsibilities divided so that the partners‟ efforts are complementary. The private sector partner usually makes a substantial cash or equity investment in the project and the public sector gains access to new revenue or service delivery capacity.
There can be several different types of Public Private Partnerships which form a spectrum, in terms of risk allocated differently between the private and public sector partnership.
Some examples of Public Private Partnerships are Build-operate-transfer (BOT), build-own-operate (BOO), build-own-operate-transfer (BOOT), design-building finance-operate (DBFO) and similar arrangements are contracts specifically designed for new projects or investments in facilities that require extensive rehabilitation. Under such arrangements, the private partner typically designs, constructs and operates facilities for a limited period from 15 to 30 years, after which all rights or title to the assets are relinquished to the government. Under a build-operate-own (BOO) contract, the assets remain indefinitely with the private partner. The government will typically pay the BOT partner at a price calculated over the life of the contract to cover its construction and operating costs, and provide a reasonable return⁵.
As already pointed out the Nigerian Government has begun in recent times to look at public private partnership as a means of finpublic-private its capital intensive infrastructural projects. In doing this, the Nigerian Public-Private Partnership Network [NPPPN] was established in 2011 through collaboration between the Infrastructure Concession Regulatory Commission (ICRC), Lagos state PPP office, and the Nigerian Infrastructure Advisory Facility (NIAF) to create a platform for all states heads of PPP units nationwide.
The government in March, 2022 further released its policy for public private partnership. This national policy document according to the World Bank sets out the steps that the Government will take to ensure that private investment is used, where appropriate, to address the infrastructure deficit and improve public services in a sustainable way. In line with the Government’s commitment to transparency and accountability, it will ensure that the transfer of responsibility to the private sector follows best international practice and is achieved through open competition. The Government has inaugurated the Infrastructure Concession Regulatory Commission (ICRC) with a clear mandate to develop the guidelines, policies, and procurement processes for PPP. The ICRC will collaborate with the States to promote an orderly and harmonised framework for the development of Nigeria’s infrastructure and to accelerate the development of a market for PPP projects. The Federal Government assures investors that all contracts completed in compliance with the ICRC Act will be legal and enforceable and that investors will be able to recover their expected returns subject to compliance with the terms of the PPP contract⁶.
In order to make the public-private partnership attractive to foreign and local investors in Nigeria, the government needs to take the following steps,
- Develop its judicial system to be able to address issues that may arise from disputes arising from the partnership, including making for effective resolutions such as Arbitration and other Alternative Dispute Resolutions Mechanisms.
- Provide Guaranties consistency in its policy thrust.
- Develop a trust fund for adequate compensation to partners in the event the government fails to meet its end of the bargain or summersault in its policy which in turn make it impossible for investors to recoup their investments or capital on those projects.
This article is for educational purposes only and is not intended to serve as a legal advice on the relevant subject.