A limited partnership (LP) is a flexible business or investment
structure that must have at least one limited partner, at least one
general partner and a written partnership agreement. A LP enjoys
many of the advantages of a company. It is a separate legal entity
in its own right; each of its limited partners (like shareholders
of a company) enjoy limited liability capped at the amount of
capital they have committed to the LP; and it is managed by one or
more general partners (similar to a board of directors managing a
company). However, a LP has the added benefits of being taxed as a
partnership, greater privacy for limited partners and greater
flexibility around governance.
Provided limited partners do not take part in the management of
the LP, their liability will be limited, meaning that their maximum
exposure is the amount of capital they have committed to invest in
the LP. Conversely, general partners, who do take part in the
management of the LP, are jointly and severally liable (along with
the LP itself) for the debts and obligations of the LP. This risk
to general partners can be mitigated by appointing a limited
liability company (with no significant assets) as general
Limited partners must be separate from general partners,
however, there are no restrictions on a related person of a limited
partner being appointed as a general partner. For example, an
individual who is a limited partner can be a director and/or
shareholder of a company that is a general partner of the same
The LP itself does not pay income tax. Rather, the LP
distributes the income to the limited partners (usually in
proportion to the limited partner's investments in the LP, or
as otherwise directed in the partnership agreement) and the limited
partners are then taxed on that income. New Zealand resident
limited partners will pay income tax in New Zealand at the marginal
rate applicable to them. Non-resident limited partners may be taxed
in their own jurisdictions, depending on the source of the
Unlike shareholders of a company, the identity and details of
limited partners are not made publicly available, meaning investors
can remain anonymous. However, the identity and details of general
partners are publicly available and we note that at least one
general partner of each LP must be resident in New Zealand or an
enforcement country (i.e. Australia). Further privacy is afforded
to LPs, as partnership agreements are not made publicly available,
allowing the content to remain confidential.
A LP is governed by the Limited Partnerships Act 2008 (Act) and
by its own written partnership agreement. The Act provides a broad
framework, including setting out minimum content requirements for
partnership agreements, however, much of the governance is left up
to the LP's partnership agreement. This allows LPs the
flexibility to operate in accordance with the size and type of
their business, the wants and needs of their partners and their
particular projects or goals.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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