Business Structures: Limited Partnerships

Another structure that can be used is a limited partnership - LP.

LPs are governed under the Limited Partnerships Act 2008, and are an example of a hybrid entity whereby it has features of both corporate entities – companies, and non-corporate entities – partnerships.

Overview

LPs have a unique structure in that there are two key players – the general partner who manages the partnership, and the limited partners who provide the partnerships investment.

The role of the limited partner is to provide investment, which the general partner will then use to manage the partnership. This could be done through the injection of cash or provision of assets the partnership may use in carrying out their business.

Advantages

LPs are a separate legal entity and therefore have a separate legal personality from its partners which makes them more similar to companies.

Furthermore, they are transparent for income tax purposes which means that losses and gains derived by the LP are attributed to the partners directly rather than taxed in the LP’s hands – a feature that exists in partnerships.

Another advantage is that there is a high-degree of anonymity in that the public cannot find out who the limited partners are – only information on the general partner is available.

Disadvantages

The nature of limited partners however is that they are generally passive investors while it is the general partner who manages the business. Consequently, the investors may be reluctant to invest into the partnership if they do not know who is managing the LP.

The General Partner does not benefit from limited liability, but rather has unlimited liability for the LPs debts. Should the limited partners take on a role where they are seen to be a general partner, they would lose their limited liability. Where there are multiple general partners, each general partner would be jointly and severally liable.

How We Can Help

If you have any questions or would like further advice about what structure would best suit your needs, please contact us.