A limited partnership is a partnership between one or more general partners, who are solely responsible for managing the partnership, and one or more limited partners, who are investors in the partnership with no involvement in its management.
The partnership is operated in accordance with the limited partnership agreement and the Limited Partnerships (Guernsey) Law, 1995, as amended (the "Law"). Generally, the limited partnership does not have legal personality separate from its partners. However, upon initial registration the limited partnership can elect to have separate legal personality; a partnership with legal personality is deemed (for certain purposes) to be a body corporate.
Limited partnerships are popular vehicles for private equity funds but there is no restriction on what type of business can be conducted through this type of structure. It is a flexible structure and does not impose any investment or gearing restrictions by law. The partnership interests of a limited partnership can also be listed on a stock exchange.
The limited partnership agreement must be in writing and specifies the rights and obligations of the general and limited partners. In particular, the agreement will set out the:
- name of the limited partnership. This must include 'Limited Partnership', 'LP' or 'L.P.' and end with 'Inc' or 'Incorporated' if it has separate legal personality but may not use a limited partner's name;
- purpose for which it is established;
- powers and obligations of the general partner;
- liability of the general partner to contribute to the debts of the partnership;
- method and procedure for the admission and retirement of new and existing partners;
- procedure for the transfer of partnership interests; and
- allocation and distribution of capital and profits between the partners.
Formation Of A Limited Partnership
If a limited partnership is proposed as a vehicle for a collective investment scheme, authorisation or consent will need to be obtained from the Guernsey Financial Services Commission and the general partner will require licensing under the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended.
Where the limited partnership makes an application as a Qualifying Investor Fund or a Registered Fund, the general partner can now take advantage of a fast track licence application process, whereby its application will be considered by the Commission within 10 days of receipt.
All limited partnerships must be registered in Guernsey with the Registrar of Companies and Limited Partnerships (the "Registrar"), who is responsible for the maintenance of the register, and the administration, of limited partnerships in Guernsey. In order to register, a prescribed form of general partner declaration and the registration fee of £350 must be submitted. The declaration must include the following:
- the name of the limited partnership;
- the nature and principal place of business;
- the registered office in Guernsey;
- the name and address of all general partners; and
- the duration of the limited partnership. If no duration is specified, a statement to that effect must be included and unless the partnership is dissolved earlier, it will be deemed by the Law to expire 30 years from the date of registration.
If the limited partnership wishes to elect to have a separate legal personality the general partners must include such a statement in the declaration submitted to the Registrar.
The names and addresses of the limited partners do not need to be provided to the Registrar and therefore are not a matter of public record.
Upon registration, the Registrar will issue a certificate of registration. Pursuant to the Limited Partnerships (Fees and Annual Returns) Regulations, 2008 a limited partnership is required to file an annual return with the Registrar before 31 January each year together with a payment of £500. The annual return contains information on a limited partnership including its name, term, registered office, details of the general partners, confirmation of compliance with certain obligations and confirmation of appointment of auditors (if any).
Each general partner has unlimited liability in respect of the limited partnership's debts and liabilities and any such liability will be joint and several between multiple general partners. However, the general partner may itself be a company in which its shareholders have limited liability. A general partner may also be a limited partner.
The general partner is responsible for the general management of the partnership in accordance with the partnership agreement and will hold any partnership assets on trust for the limited partners.
A limited partner may make a contribution to the limited partnership in the form of money or property but not in the form of services or loans. There is no maximum limit on the number of limited partners.
The limited partners' liability is generally limited to the amount which they have agreed to contribute to the partnership (as set out in the partnership agreement). The limited partners will have no authority to bind the partnership and may incur unlimited liability if they become involved in the general management of the partnership. The Law specifies certain actions deemed not to be participating in the management:
- being a contractor, agent or employee of the limited partnership or the general partner;
- acting as a director, officer or being a shareholder of a corporate general partner;
- acting as a partner in a partnership which acts as a general partner.
The limited partners have a right to share in the profits of the partnership subject to the terms of the partnership agreement. A limited partner is only entitled to receive a payment of profit or a return of its contribution if, at the time of payment, and immediately after, the limited partnership is solvent.
Limited partners can lend to, borrow from or enter into a transaction with the partnership in addition to making capital contributions. In such case, a limited partner who is not a general partner will rank as a creditor of the limited partnership.
New Admissions And Transfer Of Interests
The procedure for admissions of new partners or transfers of partnership interests is normally set out in the partnership agreement. Subject to the partnership agreement, a limited partnership interest is assignable in whole or part and the assignee will become a limited partner upon being entered on the register kept by the general partner.
Rights To Information
Subject to the partnership agreement, the limited partners have a legal right to inspect the books and records of the partnership. Limited partners are also entitled to full information in relation to all things affecting the limited partnership and to a formal account of the partnership affairs when circumstances render it just and reasonable.
It is usually the general partner's responsibility to wind up the affairs of the partnership in the event of dissolution. A notice of dissolution must be filed with the Registrar and published in the Gazette Officielle within seven days of dissolution. Upon dissolution the name of the limited partnership will be removed from the register and the certificate of registration will cease to be valid. Dissolution will be triggered by events specified in the partnership agreement, such as the expiration of the specified duration or the default duration of 30 years, or by the written agreement of all of the partners, or by the insolvency of the partnership.
Taxation And Accounting
A limited partnership will normally be tax transparent, will not incur a tax liability and, accordingly, will not be required to make a tax return. The profits and losses will be attributed to the partners according to their proportionate share. Any non-Guernsey resident partner will not be liable to any Guernsey income tax except to the extent that any part of that share is derived from Guernsey source income (other than bank interest), which includes profits from a trade carried on in Guernsey but excludes profits from international activities carried on outside of Guernsey. There is no requirement for a limited partnership to be audited unless it is a collective investment scheme.
The general partner of a limited partnership may be a Guernsey registered company and, accordingly, will be subject to zero% rate of tax on its profits.
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.