We have previously written about limited liability partnerships in Uganda. However, a certain portion of our article aroused the curiosity of some of our readers:
‘The flexibility allows partners to venture into diverse businesses without influence from each other, unless such ventures breach the Partnership Agreement.
For instance, say, a law firm can handle legal matters except for acting as real estate agents. A partner who operates a real estate agency cannot infer legality from the partnership. He is not allowed to operate as if the real estate business is linked to the law firm. His business will be an individual venture which must not interfere with the law firm’s operations. Any party that deals with him does so outside the influence of the law firm. [emphasis ours]’
The purpose of this article is to explain what that particular paragraph means.
The example given above means that a law firm is incorporated ONLY to offer legal services and may also offer real estate services linked to its legal services (transfers, mortgages, charges, caveats, etc; which can be handled by lawyers). If one of its partners (individually) has a separate real estate deal/transaction/business, separate from the partnership/firm, he CANNOT hold out as if his personal real estate deal is part of the firm’s/partnership’s business in real estate.
It does not mean that this partner cannot handle a real estate transaction on behalf of the partnership.
It simply means that when he is acting on matters of real estate, he MUST separate the deals i.e. his own deals from the deals the partnership handles.
Recap of our article
As earlier noted, our jurisdiction follows the Partnership Act, 2010. It is 7 years old and the practice in our Registry dictates how we operate. However, Section 47-54 touch on the subject of Limited Liability Partnerships.
Law Firms in Uganda are governed by the Partnerships Law. According to s.47 (5), they are body corporate which may be Limited Liability Partnerships.
- L.Ps are partnerships of not more than 20
- 1 person must act as a General Partner
- 1 or more persons must contribute capital to the firm. They will only be liable for debts up to the amount each contributed.
- They must mention the general nature of their business (s.50 (1) (b). From this, you can clearly infer the type of business that partnership is allowed to be involved in. Any changes must be clearly reported to the Registrar of Partnerships who issues a Certificate of Change in particulars.
- A limited Liability Partner does not manage or take part in the management of the firm. If he/she does, he/she is liable for all debts as if he/she were the General Partner.
- L.P partners trade as partners and can trade as individuals. They can be partners because they may fund the partnership but they are not the partnership itself. The partnership is that separate entity.
NB: The objectives of the partnership will determine/dictate what activities are performed by the L.L.P. The Registrar will examine the objectives, features, membership, duration, legality and requirements of the firm (in incorporation) and decide whether it qualifies to be registered or not.
If it is a law firm, it obviously will be offering legal services.
Suffice to note that law firms are run by lawyers/advocates authorised to practice in Uganda.
On venturing into business
If the law firm is under a L.L.P, it can still own businesses and assets, trade in something as a body corporate, contract and employ workers in its capacity.
On the other hand, the partners are also individuals therein, and can also employ personal employees or acquire services of another profession provided they explicitly state that those services and employees are theirs (individually) and NOT the Partnership’s.
If they venture into other businesses as individuals, they do so as individuals as long as those business ventures DO NOT affect the L.L.P and its business (see s.50 (1) (b))
On liability due to holding out
If the partner(s) ‘hold out’ as if they are acting on behalf of the partnership, they are personally liable in that regard.
Without prejudice, assume the following scenario
- M&M Co. Advocates is a Law Firm, a L.L.P
- It offers Legal Services
- Its partners are Advocates, allowed to practice law in the Firm’s jurisdiction.
- Its partners are, say, Jimmy, Peter, Furaha, Thomas and Jasmine.
- If Jimmy (an Advocate and a private tax consultant) gets a contract to offer tax consultancy to another entity, he does so as an individual, NOT as a representative of M&M Co. Advocates.
- Jimmy cannot operate his personal tax consultancy as if it is related to M&M Co. Advocates UNLESS M&M Co. Advocates has tax consultancy as part of its general services offered AND Jimmy is acting as its representative.
A Limited Liability Partnership intending to enter into a partnership with an individual lawyer to form another L.L.P is not entirely disallowed if they deal in similar services. That preserve is for the Registrar to decide.
Because the company and the lawyer deal in different services, they cannot enter into a partnership to offer legal services.
The ‘lawyer’ (this being just his profession) as an individual, may, contract to do other business that the company is authorised to do (real estate). He can be a limited liability partner.
We hope this sheds more light on the previous article.
BY ATUHAIRWE AGRACE
This article appears in our digital law newsletter, The Deuteronomy Vol 5, Issue 4 of May 26th, 2017
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