Business owners and investors in Nigeria who wish to combine resources with another person or company are usually faced with a choice among three related structures: the partnership, the contractual joint venture, and the incorporated joint venture. Each involves a different legal and commercial arrangement under Nigerian law, yet in practice the three are frequently confused, and parties often sign the wrong document for what they actually intend to do.

This article explains, in plain terms, what a partnership agreement and a joint venture agreement are, the different forms a joint venture can take, the similarities and differences between a partnership and a joint venture, and the purpose of each structure.

What is a Partnership Agreement

A partnership is a relationship between two or more persons carrying on a business together with a view to profit. Nigerian law recognises general partnerships as well as Limited Partnerships (LPs) and Limited Liability Partnerships (LLPs). The Companies and Allied Matters Act (CAMA) 2020 specifically provides for LLPs and LPs under Parts C and D respectively.

A partnership agreement records how partners contribute capital, share profits and losses, manage the business, and resolve disputes. In a general partnership, partners are, as a rule, jointly and severally liable for the firm’s debts. CAMA 2020 also introduced two limited liability variants:

• The Limited Liability Partnership (LLP): This is a separate legal entity from its partners. This means the LLP itself owns its property, enters into contracts, and is responsible for its debts and obligations. It can also sue and be sued in its own name.
• The Limited Partnership (LP): This has two types of partners: at least one general partner who is responsible for the management of the partnership and has unlimited liability for its debts, and at least one limited partner whose liability is generally limited to the amount they have contributed to the partnership, subject to CAMA 2020.

What is a Joint Venture Agreement

A joint venture (JV) is an arrangement in which two or more parties, often companies, pool resources such as capital, skills, technology, assets, or expertise for a common business objective or specific project, usually for a defined period, while remaining independent outside that arrangement. This means the parties may continue to operate their separate businesses outside the joint venture.

Nigeria has no general statute that specifically governs joint ventures as a distinct legal structure. The legal framework applicable to a JV will therefore depend on how the parties structure the arrangement, the terms of their agreement, and any laws or regulations applicable to the particular business or sector.

A joint venture can generally be structured in two ways:

• Contractual JV: The parties do not establish a new company for the venture. Instead, they enter into a Joint Venture Agreement (JVA) which sets out their respective contributions, responsibilities, profit-sharing arrangements, management, decision-making, and exit arrangements. Each party remains a separate legal entity.
• Incorporated JV: The parties establish a company to carry out the joint venture and become shareholders in that company. The company is a separate legal entity, owns its assets, and incurs its own liabilities. The parties may also enter into a Shareholders’ Agreement to regulate matters such as their respective rights, board composition, reserved matters, and exit arrangements.

Similarities between Joint Ventures and Partnerships

• Both combine capital, skills, or assets to pursue a shared commercial goal.
• Both rest on a written agreement defining contributions, profit sharing, and obligations.
• Both are undertaken with a view to making a profit, and parties are expected to perform their contractual obligations in accordance with the terms of their agreement and applicable law.
• CAC touchpoints: A partnership business may require registration of its business name with the Corporate Affairs Commission, while an incorporated JV is registered with the Corporate Affairs Commission as a company.

Differences between Joint Ventures and Partnerships

• Duration: A partnership is generally established as an ongoing business arrangement with no fixed end date, while a joint venture is usually established for a specific project, objective, or period.
• Liability: In a partnership, the partners generally have joint and several liability for the obligations of the business, subject to the structure of the partnership. An LP provides for limited liability for limited partners subject to CAMA 2020, while an LLP has a legal personality separate from its partners. In a contractual joint venture, the parties do not automatically obtain limited liability merely because the arrangement is described as a JV. Where the joint venture is incorporated, the company is a separate legal entity and generally incurs its own liabilities.
• Governing Law: Partnerships are governed by the applicable partnership laws and, in the case of LPs and LLPs, the relevant provisions of CAMA 2020. A contractual joint venture is primarily governed by the terms of the JVA and applicable contract law, together with any laws or regulations relevant to the particular venture. Where a JV is incorporated, the company is governed by CAMA 2020 and other laws applicable to the company’s activities.
• Management: In a partnership, each partner may generally have authority to act on behalf of and bind the firm, subject to the partnership agreement and applicable law. In a contractual JV, management is usually carried out through arrangements agreed by the parties, such as designated representatives or a management committee. In an incorporated JV, management is carried out through the company’s corporate structure, with certain major decisions potentially subject to agreed reserved matters.
• Typical Parties: Partnerships are commonly formed by individuals, professionals, or companies carrying on business together, while JVs are more commonly entered into by companies or other independent parties seeking to collaborate on a particular commercial undertaking.
• Ending the Arrangement: A partnership may come to an end in accordance with the applicable law and the terms of the partnership agreement. The circumstances for dissolution may differ depending on the type of partnership. A joint venture will typically end upon completion of the project or the occurrence of a contractual exit event.

Purpose of each Structure

• Partnership: A partnership is suitable where two or more persons intend to carry on a business together on an ongoing basis, sharing management, profits, and the risks of the business. It is commonly used where the parties intend to operate the business together rather than for a single project.
• Joint venture: A joint venture is suitable where two or more independent parties want to combine specific resources, such as capital, technology, expertise, licences or market access, to achieve a particular business objective or undertake a specific project, while remaining separate businesses outside the venture.

Conclusion

Partnerships and joint ventures both allow parties to combine resources and work towards a common business objective, but they serve different purposes. A partnership is generally suited to parties who intend to carry on a business together on an ongoing basis, while a joint venture is generally suited to parties collaborating on a particular project or business objective.

The appropriate structure will depend on the parties’ objectives, the nature of the business, and how they intend to share management, profits, risks, and liabilities.

Frequently Asked Questions

Why Choose TCorporate?

TCorporate is a fast-growing law firm with a robust transactional practice. We have advised a diverse range of clients and drafted and reviewed commercial contracts ranging from Partnership Agreements and Joint Venture Agreements to more complex commercial transactions.

At TCorporate, we provide practical legal support in drafting, reviewing, and negotiating commercial contracts to help clients protect their interests and achieve their business objectives.

Contact TCorporate today to discuss your commercial contract needs.

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Disclaimer: This publication is for general informational purposes only and does not constitute legal advice. The information provided should not be relied upon as a substitute for professional legal advice. For guidance specific to your circumstances, please consult a qualified legal practitioner.

Written by:

Ogheneyoma E. Ibuje, ACIS
Legal Associate, TCorporate Legal Advisory