With the introduction of a pioneer framework for registering Limited Liability Partnerships and Limited Partnerships in Nigeria, Lagos State gained significance in the local private equity and venture capital industry in Nigeria as a preferred jurisdiction for the formation of private equity and venture capital funds and amongst professionals, for the constitution of professional service firms.
However, following our publication of a reasoned opinion on the constitutional limitations of the Limited Partnership laws of Lagos State here, we have now confirmed that the Partnership Registry ( the “Registry” ) in Lagos State has discontinued the registration of Limited Liability Partnerships. The discontinuance in our view is well conceived and is in line with our position that Lagos State House of Assembly does not have the legislative competence to confer the incidents and or benefits of incorporation on any number of individuals, as this ability lies within the exclusive competence of the National Assembly. As of the time of this update, we understand that the Registry now only accepts registration applications for Limited Partnerships.
Although there hasn’t been any court determinations affirming the exclusive legislative powers of the National Assembly in relation to the conferment of the benefits of incorporation on a partnership, this development should be of immediate concern for pension funds, insurance firms , local and institutional investors and the universe of limited partners who are invested in a Limited Liability Partnership or a Limited Partnership registered in Lagos State.
With respect to entities or funds registered as Limited Liability Partnerships in respect of which registration has now been discontinued, there exists the risk that the benefit of limited liability, separate personality, and tax pass through status, all critical to a limited partner from a fund formation perspective will no longer be available. The legal implication of this, is that the limited partners in a Limited Liability Partnership, in their personal capacity, may be jointly and severally liable in a third-party led dispute. Although, the Registry continues to receive registrations for Limited Partnerships, the legal basis upon which the registry should continue to register Limited Partnerships is also now in doubt.
In any event, it will be extremely important for existing limited partners and investors in funds domiciled in Lagos as Limited Partnerships or as Limited Liability Partnerships, to start to consider legal structures around a potential risk exposure. For intending funds looking to adopt Limited Partnership structures in Lagos State, it will be useful for limited partners to consider expansive provisions around Partnership Reconstitution provisioning that should kick in when there exists a change of law which makes the continuation of a partnership unlawful or when a governing law has been rendered effective or has been breached.
The objective of this Client Update is to provide our limited partner/fund of fund clients with an update on some of the developments and legal issues around fund formation in Nigeria. This Client Update is not intended to be a substitute for specific legal advice or to be a legal opinion. It deals in broad terms only and is intended to merely provide a brief overview and general guidance. For more specific advice on the subject of this Client Update or on any issues and /or instructions around private equity and venture capital fund formation in Nigeria or in an offshore jurisdiction, please refer to your Balogun Harold contact or write us an email at firstname.lastname@example.org