Individuals use different business structures to achieve their goal of making profits. A business structure can be a sole proprietorship, an incorporated company or a partnership. Each of these business structures has its advantages and disadvantages but our interest here is on the operation of a partnership business.
A Partnership is a voluntary association of two or more persons acting together in business with a view to making profits. The legal requirement of partnership business in Nigeria is a minimum of two (2) and a maximum of twenty (20) individuals (this is however with the exception of a partnership of lawyers or accountants). In a partnership business, there are certain presumptions of law which guide the relationship of the partners. The fundamental presumption of law in all partnership is that of equality of the partners.
Some of the presumptions of law in a partnership include:
1. Presumption of equal capital contribution: the law presumes that each partner contributed equal capital to the partnership business. It does not matter that a partner contributed 90% of the capital and the other partner contributed 10% of the capital, the law will presume the partners contributed equally in the absence of any agreement to the contrary.
2. Presumption of equal share in Profit: the law presumes that the profits of the partnership business will be shared equally amongst the partners. In the absence of an express agreement, the law does not recognise that a partner contributed more resources that were used in making profit for the partnership and is therefore entitled to more remuneration than his co-partner(s). In the absence of express agreements, partners shall profit equally.
3. Presumption of equal Liability of the partners: if the partnership business incurs any liability in the course of doing business, each partner will contribute equally in satisfaction of such liability. If the partners intend anything to the contrary, there must be an agreement to that effect. For instance, a partner may agree to indemnify the other partners against any loss.
4. Presumption of gratuitous service ofa partner to the partnership: a partner’s service to the partnership is deemed to be gratuitous. The partner in charge of the day to day running of the partnership is not entitled to any wage or salary from the partnership business. If partners working for the partnership wish to be paid remuneration, there must an agreement to that effect.
5. Presumption of the addition of new members: new members can only be added to the partnership with the consent of all the existing partners. The consequence of this is that a partner can hold the entire partnership to ransom leading to the dictatorship of the minority
6. Presumption of dissolution upon exit of a partner. A partner may exit the partnership either voluntarily (by giving notice of intention to the other partners) or by death. In either case, the law presumes the partnership dissolved from the date of such notice or the date of the death of a partner.
7. Presumption against the expulsion of a partner by a majority of the other partners: Under the partnership law, a partner cannot be expelled from the partnership by the other partners for whatever reason. Where a partner starts working against the interest of the partnership, the only remedy of the other partners is to dissolve the partnership.
8. Presumption that the nature of the partnership business cannot be changed except with the consent of all the partners: the implication of this presumption is that the partners can only carry out the business for which the partnership was formed and cannot diversify except with the consent of all the partners. For example, if a partnership was formed for the object of selling clothes and there is a profitable business venture in agriculture, the partnership cannot take advantage of the business venture if any of the partners disagree.
These presumptions are, however, made subject to the overriding agreements of the partners. In order to rebut these presumptions of the partnership law, the partners need to draft a legal document called a “Partnership Agreement”. This is a document that regulates the relationship between the partners in a partnership business stating the obligations of each partner and it is also used to rebut some/all of the presumptions of partnership law. On this note, the first step to every successful partnership is drafting a partnership agreement that will be signed by all the partners.
Chimezie Ndubuisi is an Associate at the House of Laws, a law firm that specialises in the defense and advancement of the cause of equal rights and justice. He also advises clients on the best legal protection for their business transactions. He obtained his Bachelor of Laws degree from the university of Ibadan in 2016. He graduated from the Nigerian Law School and was called to the Nigerian Bar in 2018.
Disclaimer: This write-up is only for the purpose of information and is not intended to constitute a legal advice and the management of The Legal Diary shall not be responsible for any liability arising from the use of the information contained therein.
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He is a Double First Class lawyer from the prestigious University of Ibadan and the Nigerian Law School. Joseph is an Associate at Udo-Udoma and Belo-Osagie with interest in Corporate Law, Energy Law, Real Estate Law and Commercial Litigation. Joseph is also a Chartered Mediator.