What Is a Partnership Under Nigerian Law?

A partnership in Nigeria is a commercial relationship between two or more persons who agree to carry on a business together with a view to sharing profits or losses. Partners contribute capital, labour, skills, and other resources into an enterprise that is not a separate legal entity from the partners themselves — meaning each partner is personally liable for the debts and obligations of the firm.

Partnerships may be formed informally under an express or implied agreement, and it could be limited or general partnership, and they need not be registered under the Corporate Affairs Commission (CAC) unless they elect to register a business name. However, where the partnership is operating under a business name or agreement, documentation outlining the agreed terms, rights, profit sharing, and obligations is strongly advisable to reduce disputes.

Under the Companies and Allied Matters Act (CAMA) 2020, partnerships lawfully consist of not fewer than two and not more than twenty partners — beyond which the entity must be registered as a company unless it falls within specific professional exceptions (such as legal or accounting firms).

A key feature of Nigerian partnerships is joint and several liability: each partner is personally liable for partnership debts and obligations incurred during the partnership’s existence. Partners also share control of the business unless the partnership agreement specifies otherwise, and each has the right to access partnership books and accounts.

Why Partnerships Must Be Dissolved Properly

Dissolution marks the end of the business relationship of partners. It is important because it affects liability, asset distribution, business continuity, and legal rights. A simple verbal agreement to stop working together, without formally dissolving the partnership, often leaves partners exposed to ongoing liability for debts, unfinished contracts, and obligations to creditors.

A formal dissolution process ensures partners can settle liabilities, divide remaining assets, and conclude business affairs in a manner consistent with statutory standards and any written agreement they put in place.

While statutory provisions provide the framework, Nigerian courts have reinforced key principles in practice. In Atagbua & Co. v. Gura Nigeria Limited (2005) 8 NWLR (Pt. 927) 429, the Supreme Court reiterated the joint and several liability of partners and the need for mutual trust within the partnership

Statutory Grounds for Dissolution of a Partnership

The Partnership Act, adopted in many Nigerian states (including Lagos State) and broadly reflective of general partnership law, outlines the ways a partnership may be dissolved. Although Nigerian legislation does not uniformly codify partnership law across the entire federation, common provisions and judicial interpretation guide the practice.

1. Expiration or Completion of Venture

If a partnership was entered into for a fixed term or specific undertaking, it is dissolved automatically upon the expiry of the agreed term or the conclusion of the specified project. Otherwise, in an open-ended partnership, any partner may give notice to the others of their intention to end the arrangement.

2. By Agreement of Partners

Partnerships may be dissolved at any time by mutual consent. When partners agree to terminate the business relationship, the partnership dissolves on the date specified in their agreement or notice.

3. Death, Bankruptcy, or Incapacity

Unless the partners agree otherwise in their partnership agreement, the death or bankruptcy of a partner automatically dissolves the partnership. Where one partner’s share of partnership property is charged for their personal debts, the remaining partners may, at their option, dissolve the partnership.

4. Illegality

Where an event occurs that makes it unlawful for the business to continue — for example, loss of a necessary licence or change in law — the partnership dissolves.

5. Court-Ordered Dissolution

A partner may apply to the court for dissolution where:

• A partner has become permanently incapable of fulfilling their role due to illness or mental incapacity;

• Conduct by a partner prejudicially affects the partnership business;

• A partner persistently breaches the partnership agreement;

• Business can only be conducted at a loss; or

• Circumstances make it just and equitable for the partnership to end.

Judicial dissolution is particularly relevant where the partners cannot agree but ongoing conflict makes joint business untenable.

Steps to Dissolve a Partnership in Practice

Dissolving a partnership involves more than an oral declaration; it requires orderly winding up, settlement of liabilities, and distribution of assets.

1. Review the Partnership Agreement

The first step is to examine any existing partnership agreement for clauses on termination and dissolution. A well-drafted agreement will specify notice requirements, payment terms, and whether there are buy-out rights. Where the agreement is silent, statutory rules under relevant partnership law will apply.

2. Serve Notice of Intent to Dissolve

In the absence of a fixed term or for partnerships at will, a partner wishing to dissolve must serve reasonable notice to the others. The partnership will then dissolve on the date agreed in the notice or upon communication if no date is specified.

3. Apply to Court (If Necessary)

Where friction or incapacity arises, a partner may apply to a superior court for a decree of dissolution. The court examines whether statutory grounds exist, such as misconduct or incapacity, before granting an order.

4. Wind Up Affairs

After dissolution, partners must wind up the business. This includes:

• Settling partnership debts and liabilities;

• Selling partnership assets or agreeing on their distribution;

• Accounting for profits and losses;

• Returning capital contributions; and

• Addressing any premium or goodwill issues where applicable.

Partnership law generally provides that authority of partners to bind the firm continues only to the extent necessary to carry on unfinished business and complete winding-up activities.

5. Document the Dissolution

Even where statutory provisions permit “automatic” dissolution (e.g., expiration of term), partners are advised to prepare a formal dissolution agreement or deed that records decisions on asset distribution, liabilities, tax obligations and any ongoing commitments. This formal document protects partners from future disputes.

Legal Consequences of Dissolution

Dissolution ends the relationship but does not eliminate the partnership’s obligations. Partners remain liable for acts committed prior to dissolution. The partnership continues in a limited capacity for winding up affairs until all obligations are discharged.

If dissolution occurs due to fraud or misrepresentation, the aggrieved partner may retain equitable rights to partnership property or be indemnified against liabilities incurred as a result of the wrongdoing.

H2 — Practical Tips for Partners Winding Up

• Document Everything: Even informal partnerships benefit from written records of meetings, decisions and financial reconciliations to minimise disputes during dissolution.

• Follow Written Procedure: A partnership agreement should spell out how dissolution works, including notice periods and valuation methods for assets and goodwill.

• Seek Professional Advice: Lawyers and accountants can assist with statutory compliance, tax obligations and preparation of a partnership termination deed, which records asset division and releases of liability.

• Communicate Early: Transparency among partners about intentions to dissolve reduces conflict and preserves business value during the winding up.

H2 — Conclusion

Partnerships remain an accessible and popular business structure in Nigeria due to their simplicity and flexibility. However, properly managing a partnership — including its dissolution — requires an understanding of both the statutory rules, such as those found in state partnership law and reflected in provisions similar to sections 36–39 of the Partnership Act, and practical considerations of winding up business affairs