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1. Tax Alert – Companies' and Personal Withholding Tax
2. Disclaimer Notice
3. Copyright Notice
Legal & Tax Alert – Companies' and Personal Withholding Tax Regime
Introduction
Withholding Tax ("WHT") is an advance tax payment which is deducted and withheld from any income or disbursement due to a taxable person or to a taxable corporation, for onward remittance to the relevant tax or government collecting authority, against a final income tax liability.
This advance tax payment can be set-off against the final tax obligation(s) of the taxable person or corporation subject to such taxable person applying for and obtaining the Withholding Tax Credit Notes in respect of each advance tax withheld and remitted to the tax authorities.
Tax payers do not have any discretion as to whether to withhold and remit this advance tax in the light of the mandatory statutory obligation on the person making the payment to withhold and remit this advance tax. Failure to deduct or to withhold, and remit this advance tax to the relevant tax authority attracts punitive fines and penalties some of which are enumerated in this tax alert.
Companies WHT
Section 78 of the Companies' Income Tax Act (as amended) ("CITA") requires that where a company makes a payment to another company or to an individual, either as interest (with inter-bank deposits and royalty excluded), rent, dividend, etc, such a company shall at the time of making such payment deduct an advance tax of ten per cent (10%) of the gross amount that is paid, and remit such deducted and withheld tax to the Federal Inland Revenue Service ("FIRS") forthwith.
Non-Resident Companies & WHT
Any tax withheld from the income due to a non-resident company or individual is deemed to be a final tax on such non-resident's income earned from its Nigeria sources provided that the non-resident company does not have a fixed base or permanent establishment for doing business within Nigeria. See Section 78 (4) CITA.
Franked Investment Income. Section 80(3) CITA
Dividend income received after the deduction of the advance withheld tax of ten per cent (10%) of such dividend income is regarded as Franked Investment Income to the company receiving such dividend, and such dividend would not be charged to any further Nigerian tax with regard to the income of the recipient company.
Where however such franked investment income is re-distributed and tax is required to be accounted for on the gross amount of the dividend so earned, such company will be entitled to set-off the tax already withheld on the dividend income in order for double taxation not to accrue on the franked investment income.
Currency for Remitting WHT
All taxes that are withheld are required to be remitted in the currency of the transaction to the relevant tax authority not later than 21 days for corporations, and 30 days for individuals, from the date that the withheld amount was deducted or ought to have been withheld and remitted. See Sections 82 & 84 of CITA.
Unutilised Withholding Tax Credit Notes
The Companies' Income Tax Amendment Act, 2007 now allows all unutilised withholding tax credits to be set-off against the future tax obligations of the beneficiary of such withheld taxed income. There is however no similar provision with respect to any unutilised WHT credit notes for individuals under the Personal Income Tax regime.
Penalties for Failure to Deduct WHT
Any person obligated to deduct, withhold and remit immediately this advance tax, in the currency of the transaction from which the deduction was effected, but who fails to do so, or having withheld or deducted this advance tax, fails to pay it over to the Federal Inland Revenue Service within twenty-one (21) days from the date the obligation to withhold or deduct the advance tax arose, shall be guilty of an offence and liable on conviction to (a) pay in addition to the tax not withheld or where withheld, is not remitted; (b) a penalty of one hundred per cent (100%) per annum on the advance tax withheld or not withheld, or where withheld the advance tax is not remitted; in addition to (c) interest at the prevailing commercial bank lending rates on the advance tax and the penalty for not remitting the advance withheld tax.
PERSONAL INCOME AND WITHHOLDING TAX PROVISIONS
Sections 69-75 of the Personal Income Tax (Amendment) Act ("PITA") mandatorily requires that where any rent, interest or royalty, dividend or directors fees is paid by a corporation to an individual, or where such income is paid by an individual to another individual, the payer of such income must deduct, withhold and remit forthwith, or otherwise within thirty (30) days of the deduction, whether the deduction is made or not, ten per cent (10%) of the gross amount paid as an advance or withheld tax to the tax authority of the State where the recipient of the income resides.
Where the income paid is with regard to interest or royalty income, the rate of the advance tax to be withheld and remitted forthwith is ten per cent (10%) of the gross interest income; and for royalty income, the rate of advance tax is five per cent (5%) of the royalty income.
Non-Resident Individual Tax Payer
Non-resident individuals who receive income in Nigeria are entitled to deem the ten per cent (10%) advance tax that is withheld from such income to be a final tax on such Nigerian earned income provided they are not resident in Nigeria.
Non-Resident individuals may also be able to claim further tax relief from their home country if their home country has a signed Double Taxation Agreement or Treaty (''DTT'') with Nigeria with regard to such Nigerian earned income.
WHT and Total Tax
The primary purpose of the withholding tax regime is to ensure that all advance taxes withheld in Nigeria entitles the recipients of such income to claim a tax credit or a tax relief against such recipient's final/total tax obligation(s) for the relevant tax year.
The withholding tax systems in Nigeria also assist the tax authorities to reduce tax evasion in Nigeria.
Penalty for Failure to Deduct and Remit
Section 74 of the PITA provides that where a taxable individual who is obligated to deduct, withhold and remit an advance tax, as stated above, fails to deduct or having deducted or withheld this advance tax, fails to remit the tax to the relevant tax authority within the 30 days from when the tax was required to be deducted or withheld, such a taxable person shall be guilty of a tax offence which on conviction carries the following penalties:-
a) A Fine of N5,000 or ten per cent (10%) of the amount of the advance tax due, whichever is higher of the two, in addition to;
b) The tax deductible or deducted; plus
c) Interest on both amounts at the prevailing commercial bank lending rates.
Exemption from Withholding Tax
Dividend, interest, rent or royalty derived from outside Nigeria but brought into Nigeria through approved government channels like the Central Bank of Nigeria or any bank or corporation licensed in Nigeria to provide foreign exchange services, are exempted from the advance or withholding tax provisions in Sections 69, 70, 71 and 72 of PITA.
WHT and Relevant Tax Authority?
Some State tax authorities are now insistent on the production of withholding tax credit notes issued by such State tax authority where the payer of the income is a corporation while the recipient is an individual, before any withholding tax relief is granted. This may be in the light of the provisions of Sections 69-72 and Section 108 of the Personal Income Tax Act (as amended) which latter Section describes a person to include an executor, trustee, company, partnership, community, family and individual.
Sections 78-80 of the Companies Income Tax Act (as amended) however provides that where any income is payable by a corporation to another corporation or by a corporation to an individual to whom the provisions of the Personal Income Tax Act (as amended) apply, the corporation paying the income is statutorily required to deduct, withhold and remit ten per cent (10%) of the income so paid to the Federal Inland Revenue Service.
In the light of the provisions of the Companies' Income Tax Act (as amended) on withholding tax, it will amount to double taxation for a corporation to withhold income twice from the income of an individual for remittance to FIRS and or to the relevant State tax authority.
An amendment is therefore desirable to both PITA and CITA to definitively make all incomes due to an individual liable to withholding tax remittances to the relevant State tax authority where the individual resides; while incomes due to corporations should suffer advance withholding tax for remittance to the Federal Inland Revenue Service.
DISCLAIMER NOTICE. This Legal Alert is a free educational material, for your general information and enlightenment purposes ONLY. This Alert, by itself, does not create a Client/Attorney relationship between yourself and our Law Firm. Recipients are therefore advised to seek professional legal advice and counselling to their specific situations when they do arise.
COPYRIGHT NOTICE. This Legal Alert is protected by Intellectual Property Law and Regulations. It may however be shared with other parties provided that our Authorship is always acknowledged and this Disclaimer Notice is attached.
Oserogho & Associates
Business Solicitors, Tax Advisers & Notary Public
NEC Centre, 1 Engineering Close
2nd Floor, Suite 206, Off Idowu Taylor Street
Victoria Island, Lagos, Nigeria
Phone/Fax: (+234-1) 463 7414
Office Phone: (+234-1) 765 5635
Mobile: (+234-1) 803 326 4753;
P. O. Box 56261 Falomo Ikoyi Lagos
Email: This email address is being protected from spambots. You need JavaScript enabled to view it.
Website: http://www.oseroghoassociates.com/
1. Legal Alert – November 2012 - Property Taxes in Nigeria
2. Disclaimer Notice
3. Copyright Notice
Introduction – Property Taxes in Nigeria
There are various taxes that apply to real estate or real property transactions in Nigeria. The common public representation or perception that there are no real property or real estate taxes in Nigeria is not correct.
Some of the common taxes that apply to real property transactions in Nigeria, which will be discussed in summary formats, in this Legal Alert, are the following:-
a) Companies Income Tax and Personal Income Tax.
b) Education Tax.
c) Value Added Tax.
d) Capital Gains Tax.
e) Stamp Duties Tax.
f) State Property Taxes – Lagos State Land Use Charge Law and the Federal Capital Territory Property Tax.
Companies Income Tax & Personal Income Tax
Any income with the resulting profit earned by any person from such income, whether such a person is a corporation or an individual, from a property transaction, is liable to the payment of tax.
Where the income earner is a corporation, the corporate tax rate in Nigeria is thirty per cent (30%) of the annual profit of the corporation; and where the income earner from a property transaction is an individual or a registered business enterprise or partnership, the graduated tax rate is twenty-four per cent (24%) for individuals earning N3,200,000 and above, per annum.
Withholding Tax
One of the tax avoidance regulations in Nigeria is the withholding tax regime which applies to both corporate bodies and individuals.
The withholding tax requirement mandatorily requires the payer of any income to withhold ten per cent (10%) of such income earned, where the recipient of the income is a corporate body, and 5% where the recipient is an individual. The withheld tax amount is an advance tax payment which must be remitted by the payer of the income to the relevant tax authorities simultaneously with the payment of the income.
The recipient, from whose income this advance tax is withheld, is entitled to utilise this advance tax so withheld, to reduce his or her or its final tax liability provided that a withholding tax credit note or certificate is obtained on the recipient's behalf from the State or the Federal tax authority to whom this advance tax was remitted.
Education Tax
In addition to paying Companies Income Tax, incorporated corporations in Nigeria, engaged in any commercial activity, including real estate or real property transactions from which they make a profit, are liable to pay two per cent (2%) of such profit as Education tax to the Education Trust Fund. This Tax is collected on behalf of the Education Trust Fund by the Federal Inland Revenue Service ("FIRS").
Value Added Tax
All goods and services in Nigeria, including goods and services utilised in the real estate industry, are liable to be invoiced and to the payment of Value Added Tax ("VAT") at the rate of five per cent (5%) of the value of such real estate goods and services.
All taxable persons are required to ensure that within six months of their commencing business, they are registered for VAT, and mandatorily file monthly VAT returns.
Any failure to register for VAT, or to collect VAT, or to issue a VAT invoice, etc is an offence which entitles the Federal Inland Revenue Service ("FIRS") to assess the tax payer for the VAT payable based on FIRS' best of judgment of the VAT that is liable for payment; this is in addition to fines and interest at commercial interest rates on the unpaid VAT. The decisions of FIRS are however subject to further appeals where the tax payer disputes any decision of FIRS.
Capital Gains Tax
The Capital Gains Tax Act provides that any time an asset, including a real estate asset, whether situated in Nigeria or outside of Nigeria, is disposed off by a Nigerian tax payer, and a gain is derived as a result of such disposal, the resulting gain or profit shall be liable to a ten per cent (10%) Capital Gains Tax ("CGT") less such allowable expenditures that were utilised to enhance or preserve or defend the title to the asset.
However, gains arising from the disposal of an individual's principal private residence for another person's principal private residence are exempted from the provisions of the Capital Gains Tax Act. Also exempted from CGT are commercial motor vehicles and personal Gifts from which no monetary gain is derived.
In Lagos State however, the Capital Gains Tax, when applying for Governor's consent of a transfer of any interest in a property, is a flat rate of 2% of the consideration of the property transaction.
Stamp Duties Tax
The Stamp Duties Act requires that all written instruments, including instances where any property or interest in property is or are transferred or leased to any person, must be stamped.
Generally, Stamp Duties is charged at the rate of 75 kobo for every N200 of the consideration of certain real estate transactions like mortgages, while for conveyances or the transfer or sale of real property, the stamp duties rate is 75kobo for every N50. The Stamp Duties rate for lease and rental agreements is 16kobo for every N200 of the consideration of the lease or rental agreement.
Any written document that is not stamped is not allowed to be received in any judicial proceeding in Nigeria until the stamp duty and the resulting penalty for the non-payment of the stamp duty is paid.
There are fines and other penalties for any failure to pay stamp duties on any written instrument that is not exempted from the payment of stamp duty.
Again in Lagos State, the flat Stamp Duty rate of 2% of the consideration of the property transaction is charged when applying for Governor's consent to the transfer of any interest in a landed property.
Lagos State Land Use Charge
The Lagos State Land Use Charge Law consolidated all real property with all land Based Rates and Charges which were formerly charged under the Assessment Law, the Land Rates Law, the Neighbourhood Improvement Charge Law and the Tenement Rates Law, into one single Property Land Use Charge ("LUC").
The Annual Charge Rates Notice, published in furtherance of the Land Use Charge Law, among other things, prescribes various Land Use Charge Rates for different kinds of properties in Lagos State.
As a guide only, commercial and residential owner-occupied properties attract an annual property Land Use Charge Rate of 0.394% of the assessed value of the property; new owner-occupier/individual properties are assessed at an annual land use charge rate of 0.132% of the assessed value of the property. It is always advisable to contact the Land Use Charge Office for a definitive assessment of your property; or visit the Lagos State Land Use Charge website, www.landusecharge.com, for more information on the LUC office closest to you.
Owner-occupier properties occupied by pensioners, family compounds, properties occupied by recognised traditional rulers, public libraries, cemeteries and burial grounds, and properties owned and occupied by a religious body but used exclusively for public worship or religious education, are exempted from the provisions of the Land Use Charge Law.
There are stiff penalties for failure to pay a property land use charge within the period stipulated in a LUC Demand Notice. In additional to fines, a defaulting tax payer can have his property brought under receivership, advertised and sold to defray all outstanding taxes, penalties and administrative charges resulting from the default to pay this property tax.
Lagos State Governor's Consent – Property Taxes
In addition to the above stated flat rate of 2% as Capital Gains Tax and 2% as Stamp Duties Tax, a new owner of a real property in Lagos State will also be liable to pay 3% of the accepted consideration of the property as Registration fee, and a further 8% of the value of the property as Governor's consent fee.
The Federal Capital Territory Property Tax Bill
The Nigerian National Assembly will soon pass into law the Federal Capital Territory Property Tax Bill ("FCT Property Bill"). This Property Bill imposes a property tax on all real property situated within the Federal Capital Territory ("FCT").
For commercial properties, the proposed property tax rate is 1.5% of the appraised current market value of the property, while the property tax rate for non-commercial properties is 1% of the appraised market value of the property.
Like the Lagos State Land Use Charge, properties that are exempted from the FCT Property Tax include those that are owned, occupied and used by religious bodies exclusively for religious or congregational worship, education or such similar purpose. Other exempted persons from this property tax include non-profit making cemetery or burial grounds, public parks, diplomatic premises and real property used strictly by public institutions for learning or education.
The FCT Property Tax Bill also seeks to create a Property Tax Fund which will be administered by the Minister of the Federal Capital Territory.
There are various penalties for the non-payment of this Property Tax, in addition to fines for non-compliance, obstruction and rendition of false Property Tax Returns. Other penalties include the sale of the subject property to defray any unpaid Property Tax and Fines.
DISCLAIMER NOTICE. This Legal Alert is a free educational material, for your general information and enlightenment purposes ONLY. This Alert, by itself, does not create a Client/Attorney relationship between yourself and our Law Firm. Recipients are therefore advised to seek professional legal advice and counselling to their specific situations when they do arise.
COPYRIGHT NOTICE. This Legal Alert is protected by Intellectual Property Law and Regulations. It may however be shared with other parties provided that our Authorship is always acknowledged and this Disclaimer Notice is attached.
Oserogho & Associates
Business Solicitors, Tax Advisers & Notary Public
NEC Centre, 1 Engineering Close
2nd Floor, Suite 206, Off Idowu Taylor Street
Victoria Island, Lagos, Nigeria
Phone/Fax: (+234-1) 463 7414
Office Phone: (+234-1) 765 5635
Mobile: (+234-1) 803 326 4753;
P. O. Box 56261 Falomo Ikoyi Lagos
Email: This email address is being protected from spambots. You need JavaScript enabled to view it.
Website: http://www.oseroghoassociates.com/
1. Tax Alert – Personal Income Tax Residency Rules
2. Disclaimer Notice
3. Copyright Notice
Personal Income Tax Residency Rules
The controversy over which State Government is the relevant tax authority authorised to collect Personal Income Tax where the tax payer resides in one State but works in another State, or where the tax payer works in more than two State, during each year of tax assessment, has not abated with the passing into Law of the Personal Income Tax (Amendment) Act, 2011, Act No. 20 ("PITA Amendment").
Section 2 (1) (A) and (2) of the Personal Income Tax Act, CAP P8, Laws of the Federation of Nigeria, 2004 (''PITA'') provides that Personal Income Tax shall be paid for each year of assessment on the total income of every individual based on the State where the tax payer resides, in the relevant year of personal income tax assessment, and not based on where the individual tax payer works or carries on business.
The individuals excluded from the above PAYEE Residency Rule include Itinerant workers, persons employed in the Nigerian Armed Forces and Police other than in a civilian capacity, employees in the Nigerian Foreign Service, residents of the Federal Capital Territory, Abuja and Nigerians residing outside Nigeria but deriving income or profit from Nigeria. With the exception of itinerant workers who work from place to place, all other persons mentioned in this exception to the Residency Rule are obligated to fulfil their tax obligations to the Federal Government of Nigeria (represented by the Federal Inland Revenue Service).
Tax Payee and Multiple Residences
An individual tax payer's place of residence under the Personal Income Tax Act is the place where such an individual lives or uses as his residence most frequently in Nigeria. A tax payer's residence does not include his hotel room, vest-room or office place at which he may be temporarily lodging.
However, for individuals with multiple residences, Section 32 of the Personal Income Tax (Amendment) Act, 2011 has amended the First Schedule to the principal Personal Income Tax Act – which is on the determination of individual tax payer's residence - by inserting a new sub-paragraph (d) after paragraph 1(c). The new sub-paragraph 1(d) provides that "in the case of an individual who works in the branch office or operational site of a company or other body corporate, the place at which the branch office or operational site is situated : provided that operational site shall include Oil Terminals, Oil Platforms, Flow Stations, Factories, Quarries, Construction Sites with a minimum of 50 workers, etc."
Itinerant Workers
An itinerant worker is an individual who moves from one place to another place in the performance of his employment contract or in the provision of services.
Section 31 of the Personal Income Tax (Amendment) Act, 2011 amended the description of a Itinerant worker in Section 108 of the Personal Income Tax Act to now include individuals, irrespective of their status, who work at any time in any State during a year of tax assessment for wages, salaries or livelihood, by working in more than one such State, but works for a minimum of twenty (20) days in at least three (3) calendar months of every year of the personal income tax assessment in at least one of such States.
Section 2 (b) of the Personal Income Tax (Amendment) Act, 2011 has now inserted a new sub-section 1(A) to the principal Personal Income Tax Act, and the insertion now authorises the relevant tax authority in the State where the itinerant tax payer works for a minimum of twenty (20) days in at least three (3) months of the relevant year of assessment to collect Personal Income Tax from the itinerant worker.
Conclusion
The ability of the various State Governments and the Federal Government to properly apply the residence rule, and the itinerate workers rule, will be gravely hampered by the lack of a reliable public data on the residence and movement of tax payers and their place of work, at each given tax assessment and payment period. Building reliable public and private data bases that are interconnected is therefore very crucial to minimising tax avoidance practices in Nigeria.
Presented by:
Oserogho & Associates
Business Solicitors, Tax Advisers & Notary Public
NEC Centre, 1 Engineering Close
2nd Floor, Suite 206, Off Idowu Taylor Street
Victoria Island, Lagos, Nigeria
Phone/Fax: (+234-1) 463 7414
Office Phone: (+234-1) 765 5635
Mobile: (+234-1) 803 326 4753;
P. O. Box 56261 Falomo Ikoyi Lagos
Email: This email address is being protected from spambots. You need JavaScript enabled to view it.
Website: http://www.oseroghoassociates.com/
1. Tax Alert – Minimum Tax and Dormant Companies
2. Disclaimer Notice
3. Copyright Notice
Tax Alert - Minimum Tax and Dormant Companies
General Introduction
The inability of many global economies to come out of recession has resulted in redundancies and more closure of businesses without these businesses necessarily going through liquidation or winding up proceedings.
There are also companies that were registered and have remained dormant without the owners being aware that the dormancy of their companies attracts minimum tax and minimum corporate affairs commission compliance requirements.
This Tax Alert is an introduction to the Minimum Tax provisions for all registered companies in Nigeria.
Introduction to Minimum Tax
According to the Federal Inland Revenue Service, Minimum Tax is justifiable on the premise that every asset generates income. The Minimum Tax regulations is therefore a anti- tax avoidance measure which is charged whether or not the affected company declares a profit, or the company was dormant during the relevant year of tax assessment.
Where a company is dormant, Minimum Tax is usually charged on the company's net asset or on its share capital, whichever is higher of the two.
Minimum tax legislation
The Companies Income Tax Act (as amended) provides that where in any year of assessment, the ascertainable profits of a company, from all sources, results in a loss or where the company's ascertainable profits results in no tax been liable for payment, or where the tax payable is less than the statutory minimum tax allowable, such a company shall be liable to be charged and to pay a statutory minimum tax, which amount will be dependent on whether the company has a annual turnover of less than N500,000, or more than N500,000.
A company with an annual turnover of N500,000 or less, that has been carrying on business for at least four (4) years, is liable to charge to a Minimum Tax of any of the higher of the following sums:
(i) 0.5 per cent of the company's gross profit; or
(ii) 0.5 per cent of the company's net assets; or
(iii) 0.25 per cent of the company's paid up share capital; or
(iv) 0.25 per cent of the turnover of the company for the relevant year of tax assessment.
Where however, the turnover of the company is more than N500,000, the minimum corporation tax payable shall be the higher of the above rates that is charged for companies with an annual turnover of N500,000 or less, plus 0.125 (or fifty per cent) on the excess of the turnover that is above N500,000 will be charged as Minimum Tax.
Exemption from Minimum Tax Regulations
Companies that are involved in agricultural production or businesses, with companies that have not carried on business during the first four years of their incorporation, or companies that have at least twenty-five per cent imported equity capital fully paid for by a foreign company, are among the exempted corporations to whom the minimum tax provisions stated above do not apply.
Capital Allowances and Minimum Tax
For each year of assessment in which Minimum Tax is payable, the capital allowance for that year shall be computed together with any unabsorbed allowances brought forward from previous years, and these shall be deducted as far as possible from the assessable profits for the relevant financial year, and carried forward.
Any unabsorbed portion of the capital allowances of a company are allowed to be carried forward to the next financial year.
Dormant Companies and Minimum Tax
The general perception that dormant companies are not liable to pay any tax at all as they are not engaged in any trade or business is not correct. As a tax-avoidance measure, Minimum Tax is charged on the higher amounts of such a dormant company's gross profit, or its net assets, or its paid-up share capital, or its turnover, at the rates stated above. The only exemptions to this rule are as also stated above.
To avoid penalties for non-compliance, owners of companies that are dormant for any reason, or are not making any profits, will do well to contact their Tax Advisers for compliance in order to avoid tax penalties that could finally liquidate such companies.
DISCLAIMER NOTICE. This Legal Alert is a free educational material, for your general information and enlightenment purposes ONLY. This Alert, by itself, does not create a Client/Attorney relationship between yourself and our Law Firm. Recipients are therefore advised to seek professional legal advice and counselling to their specific situations when they do arise.
COPYRIGHT NOTICE. This Legal Alert is protected by Intellectual Property Law and Regulations. It may however be shared with other parties provided that our Authorship is always acknowledged and this Disclaimer Notice is attached.
Oserogho & Associates
Business Solicitors, Tax Advisers & Notary Public
NEC Centre, 1 Engineering Close
2nd Floor, Suite 206, Off Idowu Taylor Street
Victoria Island, Lagos, Nigeria
Phone/Fax: (+234-1) 463 7414
Office Phone: (+234-1) 765 5635
Mobile: (+234-1) 803 326 4753;
P. O. Box 56261 Falomo Ikoyi Lagos
Email: This email address is being protected from spambots. You need JavaScript enabled to view it.
Website: http://www.oseroghoassociates.com/
Legal Alert – June 2012 – Limited and General Partnerships
 
In this Issue
1. June 2012 – Limited and General Partnerships.
2. Copyright and Disclaimer Notices.
3. Subscribe and Unsubscribe.
Introduction
Partnership is one of the most common forms of establishing a business in Nigeria. The culture of sustaining long-term Partnerships that thrives and outlive their original partners have however remained mostly a mirage in Nigeria.
This educational Alert is our contribution to the enlightenment process on the provisions of the Partnership Law and how they may affect your business, if you elect to go into one (or are already in a Partnership).
What is a Partnership?
Many States in Nigeria, pre and post independence, adopted the English Partnership Act as a statute of general application. Some States like Lagos State adopted this Law with some modifications.
The Lagos State Partnership Law describes a Partnership to be the relationship which exists between people, carrying on business otherwise than as a limited liability company or incorporated trustees, with the sole objective of making and sharing profits.
The Lagos State Partnership Law preserves the rules of equity and common law already applicable to partnerships provided that these rules are not inconsistent with or in conflict with the express provisions of the Lagos State Partnership Law.
What is a Limited Partnership?
What is a limited partnership holds the most curiosity to a twenty-first century entrepreneur exploring the best way(s) of structuring his or her business(es).
The Lagos State Partnership Law provides that a Limited Partnership must not consist of more than twenty (20) people, and must have one or more General partners who shall bear the debts, liabilities and other obligations of the Partnership.
Unlike a General Partner, a Limited Partner is not liable for the debts of a Partnership beyond the amount that he or she has contributed to own equity in the Partnership. Where however, a Limited Partner draws out or receives back any portion of his equity contribution to a Partnership, such Limited Partner shall in such circumstance be liable for the debts and other related obligations of the Partnership up to the amount so drawn out or received back.
Registration of Limited Partnerships?
Every Limited Partnership that carries on business in Lagos State is obligated to register such a Limited Partnership with the Registrar of Limited Partnerships in Lagos State.
The implication of the failure of a Limited Partnership not registering such a partnership while carrying on business in Lagos State is that each and every Limited Partner will be deemed in Law to be a General Partner liable for the debts and other obligations of the Partnership.
Any changes in the registration details of a Limited Partnership must be communicated and registered with the Registrar of limited Partnerships in Lagos State within seven (7) days of the consummation of such change. The penalty for default in communicating and registering the change, to/with the Registrar of Limited Partnerships, is a fine, which on conviction will not exceed N2.00k (Two Naira) for each day during which the default continues.
Also, any change in the status of a General Partner or in the assignment of the equity of the General Partner to a Limited Partner must be immediately advertised in the Lagos State Government Gazette; and until such change is advertised in a Gazette, the change or arrangement or transaction shall have no effect in Law.
Roles of Limited Partners
A Limited Partner shall not take part in the day-to-day management of a partnership's business or businesses. A Limited Partner shall also not have the power to bind the Partnership and where he breaches any of these provisions, the Limited Partner shall be liable for the debts of the partnership as though he were a General Partner.
A Limited Partner or his appointed agent however has the right to inspect the books of the partnership, with its operational state and prospects, and to advise the Partners managing the partnership business accordingly.
The Powers of General Partners
Every General Partner is an agent of the Partnership and of his other Partners ("the firm"); and therefore can bind himself and his Partners with regard to the business of the firm unless there is a clear intention or agreement that a General Partner has no authority to act for the Firm in a particular matter or matters.
Where one Partner pledges the credit of the Firm for a purpose which is unconnected with the Firm's ordinary course of business, the Firm shall not be bound by such pledge unless the Firm specially authorised the Partner concerned to pledge the credit of the Firm.
Liability of Partners
General Partners are jointly liable for all the debts and other obligations of the Firm incurred while they remain Partners of the Firm. On the death of any Partner, he or her estate shall be severally liable for such debts and obligations so far as they remained Partners when those obligations accrued, and the debt remained unpaid after the demise of such a Partner.
Where a General Partner acting within the scope of his or her authority, or the Firm itself, receives third party income or property, and misappropriates or misapplies such income or property, the Firm itself and each General Partner shall be jointly and severally liable for the injury and loss suffered by the third party.
Also, any person who represents himself or holds himself out to members of the public as a Partner of a Firm shall be liable as a General Partner to any person who relies on such misrepresentation and suffers a loss in consequence thereof.
The liability for "holding out" however does not apply to actions that occur after the demise of the "holding out Partner" or to the deceased person's estate.
New Partners admitted into an existing Partnership are not liable to the creditors of the Firm for anything done before the new Partner joined the Firm. In equal measure, a Partner that retires from a partnership does not by his retirement cease to be liable for the partnership's debts incurred while he or she was still a Partner of the Firm except if there is an express agreement with the remaining Partners and Creditors discharging the retiring partner from these kinds of obligations.
Corporate Governance & Partnerships
DUTY TO ACCOUNT. Each Partner is bound by Law to render to the other Partners of the Firm a true and honest and full account, with other materials, on all aspects of the Partnership business.
Each and every Partner is also required to account to the other Partners of the Firm for any benefit or private profit derived by such Partner from any partnership business or related business, or from the use of the partnership property, name or business connections, without the consent or knowledge of the other Partners of the Firm.
DUTY NOT TO COMPETE. Each and every Partner is also obligated not to compete with the Firm by carrying on any business of the same kind or nature as that or those carried on by the Firm. Where a Partner breaches this rule, such a Partner shall be personally liable to account to and pay over to the other Partners all the profits and benefits made by him or her from such similar competing business.
Dissolution of Partnerships
Subject to any express agreement, a Partnership can be dissolved in any of the following ways:-
(a) If it is entered into for a fixed term, by the expiration of that term.
(b) If it is entered into for a single venture or undertaking, by the completion or termination of that undertaking or venture.
(c) If it is entered into for an undefined period of time, by any of the Partners giving notice to the other Partners of his intention to dissolve the partnership or retire from the partnership.
A Partnership could also be dissolved by the death, bankruptcy or charge of the assets of a Partner for such a Partner's private debts.
Other grounds for dissolving a Partnership include where a Partner is adjudged to be a lunatic or to be a person of unsound mind; or where his conduct is prejudged by a Court of Law to be to the prejudice of the entire partnership business.
A Notice of the dissolution of a Partnership published in the Lagos State Government Gazette, and in any newspaper with wide circulation in the area of Lagos State where the Partnership carries on business shall be sufficient notice to the members of the public of such dissolution of the Partnership.
Partnership Property on Dissolution
On the dissolution of a Partnership, every Partner is entitled to, as against the other Partners of the Firm, have the Partnership properties applied in the payment of all the partnership debts and liabilities, with the surplus assets or income applied, after deducting each Partner's own debt to the Firm, to the payment of any winding up surplus revenue to the Partners of the Firm.
The death, bankruptcy or lunacy of a Limited Partner shall not be a ground for dissolving a Partnership unless the Limited Partner's equity in the Partnership cannot be ascertained and realised.
A Limited Partner does not have the right to dissolve a Partnership while a General Partner can, subject to the terms and conditions of the Partnership Agreement, serve notice of the dissolution of the Partnership.
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Oserogho & Associates
Business Solicitors, Tax Advisers & Notary Public
NEC Centre, 1 Engineering Close
2nd Floor, Suite 206, Off Idowu Taylor Street
Victoria Island, Lagos, Nigeria
Phone/Fax: (+234-1) 463 7414
Office Phone: (+234-1) 765 5635
Mobile: (+234-1) 803 326 4753; (+234-1) 765 5635
P. O. Box 56261 Falomo Ikoyi Lagos
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Website: http://www.oseroghoassociates.com/