What partnership means
A partnership is people in business together without a company between them.
It can arise by agreement or simply by conduct, which is the part people miss. Two friends who start trading together and split the profits may be partners in law even though nobody signed anything and nobody registered anything.
The consequence is joint liability. In an ordinary partnership, each partner can bind the firm, and the partners are personally liable for the debts, including those a partner ran up without consulting the others.
How it is used
Partnerships are common among professionals, small trading businesses and family ventures. In Nigeria they are typically registered at the CAC as a business name with the partners listed, unless the partners choose a limited liability partnership where that is available.
What should exist alongside registration is a partnership agreement. It sets out contributions, profit sharing, decision making, what happens when a partner wants out, what happens if one dies, and how disputes are resolved. Without it, the default rules apply and they rarely match what anybody assumed.
Key features
- Two or more people carrying on business in common for profit
- Can arise by conduct, without any written agreement
- Partners generally share profits and losses as agreed, or equally by default
- Each partner can bind the firm in the ordinary course of business
- Partners are personally and jointly liable for partnership debts
How this works in Nigeria
Most Nigerian partnerships are registered as business names at the CAC, which means the partners have no limited liability. Limited liability partnerships exist under CAMA 2020, but they are far less common in ordinary small business practice.
The practical risk is unlimited exposure to a partner's decisions. If one partner takes a loan in the firm's name or signs a supply contract the business cannot meet, the creditor can pursue the other partners personally. That single point is why serious ventures with real liabilities incorporate instead.
Partnership vs limited company
A partnership is simple, cheap and flexible, and it exposes the partners personally.
A limited company costs more to set up and carries more compliance, and it puts a legal person between the business and the owners. Debts belong to the company, and the shareholders generally risk only what they put in.
The other practical difference is exit. Selling shares in a company is straightforward. Leaving a partnership can trigger dissolution unless the agreement provides otherwise, which is one more reason the agreement matters so much.
Limits and risks
Unlimited personal liability is the headline limitation, and it applies to debts you did not personally create.
Partnerships also lack perpetual succession. Without a well drafted agreement, the death or departure of a partner can dissolve the firm, disrupting contracts, banking and staff at the worst possible moment.
Worth knowing
Write the exit terms before you need them. Most partnership disputes are not about profit while things go well, they are about what a departing partner is owed and who keeps the clients.
Questions people ask
Can a partnership exist without a written agreement?
Yes. Partnership can arise from conduct, where people carry on business together for profit. That is exactly why a written agreement matters, because without it the default rules apply and they seldom match what the partners assumed.
Are partners personally liable for business debts?
In an ordinary partnership, yes, and jointly. A creditor can pursue any partner personally, including for a debt another partner created in the ordinary course of business.
How do partners share profits?
As set out in the partnership agreement. Without one, the default position is generally equal sharing regardless of who contributed more capital or effort, which is a common source of resentment.
What should a partnership agreement cover?
Capital contributions, profit and loss sharing, decision making and voting, roles, what happens when a partner leaves, dies or becomes incapacitated, restrictions on competing, and how disputes are resolved.
Should I form a partnership or a company?
If the business carries real liability, hires staff, signs significant contracts or will raise money, incorporate. A partnership suits low risk ventures where the simplicity is worth the personal exposure.
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