CONTENTS

1. INTRODUCTION
2. GENERAL FEATURES OF PARTNERSHIPS
3. LIMITED PARTNERSHIPS
4. FORMATION OF A LIMITED PARTNERSHIP
5. PROVISIONS RELATING TO LIMITED PARTNERS

1. INTRODUCTION

The following is a brief guide to the law relating to partnerships in the British Virgin Islands. Prior to the enactment of the Partnership Act 1996, which came into force on 1st January 1997 (the "Act"), partnership law in the British Virgin Islands was derived from a very short Partnership Act of 1888 and the English common law and rules of equity.

There are two types of partnership organisation envisaged by the Act, general and limited partnerships. Paragraph 2 details some of the general provisions of the Act which are applicable to general partnerships. As limited partnerships are made up of both general partners and limited partners, many of these general provisions also apply to general partners in limited partnerships. Paragraphs 3 - 5 deal mainly with the provisions relating to limited partnerships.

2. GENERAL FEATURES OF PARTNERSHIPS

2.1 General Partnerships

Although a partnership is often thought of as a separate legal entity, both general and limited partnerships do not in fact have a legal identity distinct from the partners of which they are comprised, in the way that a company has an identity distinct from its directors and shareholders. Each time there is a change in the partners (a new partner being made up or a partner dying or retiring), there is technically, therefore, a dissolution of the old partnership and the commencement of a new partnership. In practice, however, the outside world may not be aware of the change because the business of the partnership will continue as before.

A partnership will have a firm name ("firm" simply meaning the group of persons who have joined together in partnership) which may or may not encompass the names of the partners comprising it. This is for convenience only, as the firm is not a person in its own right. Also for convenience, a firm can sue and be sued in its firm name (see paragraph 2.6 below).

2.2 Formation of a general partnership

A partnership is defined in the Act as "the relation which subsists between persons carrying on business in common with a view of profit". The definition specifically excludes the relationship between members of companies whether incorporated under the Companies Act, the International Business Companies Act or by letters patent or Royal Charter.

Partners do not have to be individuals, as the definition of "person" includes, as well as a natural person, "a partnership, general or limited, domestic or foreign, a company, a trust, an estate, an association, a custodian, a nominee or any other individual or entity in its own or any representative capacity". The Act also specifically provides that a body corporate (with or without limited liability) may be either a general or limited partner.

There does not need to be a written agreement of any kind for a general partnership to exist. In cases of doubt, the Act sets out guidelines to assist in determining whether a given arrangement constitutes a partnership.

2.3 Liability of firm and the partners

Every partner in a general partnership is liable jointly with the other partners for all debts and obligations of the firm incurred while he is a partner. On his death his estate will be liable for all such debts and obligations prior to the payment of his separate debts.

In most cases, a partner will only be liable for debts and obligations incurred during the time he is a partner and will not be responsible for any debts and obligations incurred before he was a partner, or after his retirement. He will, however, remain liable for the debts and obligations incurred before retirement even after his retirement. In cases where a third party is not aware of the retirement of a partner and notice of the retirement has not been given (see paragraph 2.4 below), the retired partner may still be liable as a partner of the firm to the third party.

Partners and the firm are liable for any damage caused by the wrongful act or omission of one of the partners acting in the ordinary course of the business of the firm or with the authority of the other partners. Specific provisions also make the firm and each of the partners liable for the misapplication of money or property of a third party.

2.4 Third parties and their relationship to a firm

All partners will be liable for the acts of a partner if he is carrying on in the usual way business of the kind carried on by the firm. This is so unless the partner has no authority to bind the firm in relation to the specific act and the person with whom he is dealing either knows that the partner has no authority, or does not know or believe him to be a partner.

Where a person deals with a firm after a change in the partners, he is entitled to treat all the apparent partners of the old firm as still being partners of the firm until he has notice of the change. An advertisement of the change in the partners in the Gazette will constitute sufficient notice to all persons who had dealings with the firm before the change.

2.5 Partnership property

All property, rights and interest in property either originally brought into the partnership or acquired by it for the business purposes of the partnership is partnership property. It must be held by and applied by the partners exclusively for the partnership. Property which has been bought with money belonging to the firm is, unless otherwise agreed, partnership property.

2.6 Actions by or against a firm and its partners

The procedures for suing a firm and its partners are contained in the British Virgin Islands Rules of the Supreme Court which are based on the 1970 edition of the English Rules of the Supreme Court. A firm may sue or be sued in the firm name. Only those persons who were partners in the firm or alleged to be partners in the firm at the time the cause of action arose, face possible liability in an action against the firm. Where the firm is suing it must, on a written demand, provide the defendants with the names and addresses of the partners. Where the firm is sued, the partners must file acknowledgements of service of the writ in their individual names.

2.7 Recovery of debts against a firm and its partners

If the partners of a firm are sued in the firm name judgement may be given against the firm. In such a case, execution may be levied against either partnership property or against the individual partners. In relation to non-partnership debts, a judgement creditor of a partner may not levy execution against partnership property. He may, however, apply for an order charging the interest of the partner in the partnership property and the partner’s share of profits. An order may also be sought to appoint a receiver to assist in collection.

2.8 Relationship between the partners

The interests of partners in partnership property and their rights and duties in relation to the partnership are generally fixed by specific agreement in writing. This agreement may provide as to how it can be varied. Under the terms of the Act, the interests of partners in partnership property and their rights and duties in relation to the partnership may be varied by consent of all the partners. Consent may be express or inferred from a course of dealing.

Where there is no agreement to the contrary, the Act specifies certain rules which set out the rights between partners. Some of the more important of these are as follows:

  • all the partners are entitled to share equally in the capital and profits of the business and have to contribute equally to the losses;
  • the firm will indemnify every partner in respect of payments made and personal liabilities incurred in the ordinary and proper conduct of the business of the firm, or for anything necessarily done for the preservation of the business or the property of the firm;
  • every partner is entitled to take part in the management of the partnership business;
  • no person may be introduced as a partner without the consent of all existing partners;
  • ordinary matters connected with the partnership business may be decided by a majority of the partners, but no change may be made in the nature of the partnership business without the consent of all existing partners.

Every partner has to account to the firm for any benefit derived by him, without the consent of the other partners, from any transaction concerning the partnership, or from any use by him of partnership property, its name or business connection. Similarly, if without the consent of the other partners, a partner carries on a business of the same nature and competing with the business of the firm, he must pay over all profits made by him in competition to the partnership.

2.9 Retirement

A partner cannot retire at will from a partnership without a fixed duration unless he has an express right to do so under a partnership agreement, or the other partners agree that he may retire. The only way in which retirement may be effected in such a situation would be to terminate the entire partnership by notice to all the other partners (see paragraph 2.11 below).

In the case of a partnership of fixed duration, a partner having no right to retire will be locked into the partnership if the other partners are not willing to let him retire since such a partner does not have the right to terminate the partnership on notice. His only solution would be to seek a dissolution of the partnership from the Court. This is, however, only granted in certain specified circumstances (see paragraph 2.11 below).

2.10 Expulsion

A partner can only be expelled from the partnership by a majority of the partners if a power to expel has been expressly agreed between the partners.

2.11 Dissolution of the partnership

The dissolution of a partnership is the beginning of the process of the termination of the affairs of the partnership. Since a partnership will technically be dissolved on any change to the constituent partners, a dissolution will often pass unnoticed since the business of the partnership will continue as before, although as a new partnership because the partners will have changed.

Dissolution of a partnership may occur in the following ways:

(a) Subject to any agreement between the partners:-

  • on the expiration of the fixed term for the partnership;
  • on the termination of the adventure or undertaking for which the partnership was entered into; or
  • if the partnership does not have a fixed term and one partner gives notice to the other partners of his intention to dissolve the partnership. Dissolution will occur either as from the date set out in the notice, or where no date is set out in the notice, from the date of communication of the notice.

(b) By the death or bankruptcy of any partner unless all of the remaining partners vote within 90 days to continue the partnership.

(c) At the option of the other partners if one partner suffers his share of the partnership property to be charged for his own separate debt.

(d) By an event which makes the business of the partnership unlawful.

(e) By an order of the Court in a number of situations, including where the Court is of the opinion that circumstances have arisen which render it just and equitable that the partnership be dissolved.

After the dissolution of a partnership the authority of each partner to bind the firm and the other rights and obligations of the partners continue only so far as is necessary to wind-up the affairs of the partnership and to complete unfinished transactions. There is no requirement that a liquidator be appointed to wind up the affairs of a general partnership.

The Act contains a number of provisions dealing with the distribution of assets on dissolution most of which only apply subject to any agreement to the contrary.

3. LIMITED PARTNERSHIPS

3.1 Types of partner

A limited partnership is defined under the Act as a partnership formed by two or more persons with one or more general partners and one or more limited partners. Any one person may be both a general and limited partner in the same partnership at the same time but the partnership must always consist of at least two distinct persons.

(a) The Limited Partner

In general terms, a limited partner contributes to the capital of the business but is not liable for the debts and obligations of the limited partnership (unless he is also a general partner) and does not take part in the control of the partnership business. He will contribute to the partnership in the form of cash, property or services and has a right to the return of his contribution and to receive a share of the profits or other compensation. A limited partner may become liable for the obligations of the limited partnership if he participates in the control of the partnership business and any persons transacting business with the limited partnership reasonably believe, based upon his conduct, that he is a general partner (see paragraph 5.2 below).

(b) The General Partner

A general partner has all the rights and powers and is subject to all the restrictions and liabilities of a partner in a general partnership. Despite the fact that a general partner has all the rights and powers of a partner in a general partnership, in a limited partnership he is not authorised to do certain matters without the written consent or specific ratification of all the limited partners, or unless he has specific power under the Articles (see paragraph 4.3 below). For example, a general partner cannot admit another person to the partnership, as general or limited partner, unless he has power to do so without the consent of the other partners under the Articles. Similarly, unless he has power under the Articles, a general partner cannot continue the business with the partnership property on the death, retirement, bankruptcy or incapacity of a general partner without the consent of all the partners.

3.2 Types of limited partnership

The Act provides for two types of limited partnership, the local limited partnership and the international limited partnership. The distinction between the two is similar to the distinction between companies incorporated under the Companies Act and international business companies incorporated under the International Business Companies Act (see paragraph 4.2(b) below).

(a) Local limited partnership

A local limited partnership should be formed for those partnerships conducting business within the British Virgin Islands since an international limited partnership is prohibited from carrying on business with persons resident in the British Virgin Islands.

(b) International limited partnership

An international limited partnership is not permitted to carry on business with persons resident in the British Virgin Islands but it may, however, serve as a general partner of another international limited partnership and it may hold meetings of its partners, managers or advisers within the British Virgin Islands without being required to hold a licence under the Company Management Act 1990.

4. FORMATION OF A LIMITED PARTNERSHIP

4.1 Constitution

The formation of a limited partnership is similar to the formation of a British Virgin Islands international business company in that each limited partnership must have a registered agent. The constitution of a limited partnership consists of a Memorandum (which must be subscribed by the registered agent) and Articles (which are subscribed by those persons forming the limited partnership). The Memorandum contains details of the structure of the limited partnership and the type of business it is to carry on. The Articles contain the internal regulations of the limited partnership.

The Memorandum has to be submitted to the Registrar (who is also the Registrar of Companies) for registration. This means that the Memorandum is a public document and is available for inspection. The Articles only have to be submitted to the registered agent of the limited partnership and will not be open to inspection by the public.

If the filing requirements are not followed, the limited partnership will be deemed to be a general partnership and all partners shall be general partners.

4.2 Memorandum

The Memorandum must include the following matters:

(a) Name

The name of a limited partnership must end either with the words "Limited Partnership" or the abbreviation "L.P.". The name of a limited partner must not appear in the firm name unless it is also the name of a general partner in the limited partnership or the business of the limited partnership was carried on under that name prior to the time that the limited partner was admitted. If the name of a limited partner appears in the firm name in contravention of these provisions, the limited partner is then liable as a general partner to creditors of the firm who do not have actual knowledge that he is not a general partner.

A limited partnership cannot be registered with a name that is identical to the name of any other limited partnership registered under the Act or to the name of any company or other entity already incorporated in the British Virgin Islands. A limited partnership may only be registered with a name which very closely resembles the name of another limited partnership or company already in existence if the latter gives its consent.

Unless written permission is granted by the Registrar, the following words or phrases, or words or abbreviations conveying a similar meaning, are prohibited from use in the name of a limited partnership:

(aa) Assurance;

(ff) Insurance;

(bb) Bank;

(gg) Municipal;

(cc) Chartered;

(hh) Royal;

(dd) Co-operative;

(ii) Trust; and

(ee) Imperial;

(jj) Trustee.

Since a limited partnership is not permitted to carry on banking or trust business or insurance business (see paragraph 4.2(b) below), it will not be entitled to use words in its name which suggest the carrying on of any of those businesses. Under the provisions of the Company Management Act a limited partnership will only be able to use words in its name suggesting the business of company management if it is licensed under that Act.

Any words or abbreviations suggesting the patronage of or any connection with Her Majesty, any member of the Royal Family, Her Majesty’s Government or one of its departments, a municipality or other local authority or a society or body incorporated by Royal Charter, are also prohibited unless written permission is granted by the Registrar.

The Act contains provisions enabling a name to be reserved for ninety days upon payment of a fee. The reservation may be continued for successive ninety day periods or may be transferred to any other person.

A limited partnership may change its name by amending its Memorandum.

(b) Objects and Purposes

The Act provides that a limited partnership may have a wide objects clause. It may also be established for any object or purpose not prohibited under the Act or under any law for the time being in force in the British Virgin Islands. The objects and purposes of the partnership may be limited by conditions or limitations in the Memorandum or Articles.

A limited partnership is prohibited from carrying on certain activities which are set out in section 50(1) of the Act. In the case of an international limited partnership these activities (and those detailed in section 50(2) (see below)) must be set out verbatim in the Memorandum.

Section 50(1) of the Act provides that a limited partnership may not carry on:

(aa) banking business;

(bb) trust business;

(cc) the business of insurance, reinsurance, insurance agent, insurance adjuster or insurance broker or any other kind of insurance business; or

(dd) the business of company management unless it is licensed or is exempt from being licensed under the Company Management Act.

An international limited partnership is also prohibited under section 50(2) of the Act from:

(ee) carrying on business with persons resident in the British Virgin Islands; and

(ff) owning an interest in real property situate in the British Virgin Islands other than a lease for property to be used as an office as set out in paragraph (ee) below.

Section 50(3) provides that certain matters do not constitute carrying on business with persons resident in the British Virgin Islands. These are as follows:
  • transacting banking business in the British Virgin Islands with or through a bank licensed under the Banks and Trust Companies Act;
  • making or maintaining professional contact with solicitors, barristers, accountants, bookkeepers, trust companies, administration companies, investment advisers or similar persons carrying on business within the British Virgin Islands;
  • preparing or maintaining books and records within the British Virgin Islands;
  • holding within the British Virgin Islands meetings of its partners;
  • holding a lease of property for use as an office from which to communicate with partners or where books and records of the partnership are prepared or maintained;
  • holding shares, debt obligations or other securities in a company incorporated under the International Business Companies Act or a company incorporated under the Companies Act; or
  • having as one of its partners any person resident in the British Virgin Islands or any company incorporated under the Companies Act or the International Business Companies Act.

(c) Registered Office

A limited partnership must at all times have a registered office in the British Virgin Islands which must be maintained either by the partnership or by its registered agent. The address of the registered office of the partnership in the British Virgin Islands must be set out in the Memorandum.

(d) Registered Agent

A limited partnership must have a registered agent in the British Virgin Islands and the name and address of the registered agent must be set out in the Memorandum. The registered agent must be licensed to practise in the British Virgin Islands although one of the general partners of a local limited partnership may be its registered agent.

The role of the registered agent is to subscribe its name to the Memorandum and file it with the Registrar and to keep the partnership’s Articles and any other records required by the Act or the partners. The registered agent, together with the general partners, may be held liable for any false statements contained in the Memorandum.

(e) General Partners

The full name and address of each general partner must be set out in the Memorandum.

(f) Term of Partnership

The Memorandum must state the term, if any, for which the partnership is intended to exist.

(g) Limited Liability

The Memorandum must contain a statement that the partnership is limited.

(h) Limited Partners

The Memorandum must state that any partner not named in the Memorandum as a general partner is a limited partner.

(i) Other Information

The Memorandum should contain any other information that the registered agent is instructed to include therein by the provisions of the partnership’s Articles.

4.3 Articles

Generally, the Articles contain the internal regulations of the limited partnership but the Act provides that rights and powers of limited partners may be created by the Memorandum and Articles, a partnership agreement or other agreement in writing.

The Act does not expressly set out matters which are required to be included in the Articles but it seems clear that the following matters should be included:

(a) The Articles must contain the name of the registered agent of the limited partnership.

(b) The Articles should set out the share of profits or compensation by way of income, if any, due to the limited partners since the Act only provides for the payment of such share of profits or compensation as is set out in the Articles.

(c) The Articles must set out the manner in which any amendments to the Memorandum and Articles are to be made since the Act provides that the Memorandum and Articles may be amended in the manner set out in the Articles.

(d) Since all persons forming a limited partnership have to execute the Articles, the names and addresses of all the partners, general and limited should be set out in the subscription clause.

(e) It would be prudent to include in the Articles the amount of contribution agreed to be made by each limited partner since although the Act does not specify that it be included certain sections of the Act assume that it will be set out in the Articles.

There are a number of matters in relation to which the provisions of the Act will prevail unless dealt with in the Articles. Some of the most important of these are as follows:

(f) Unless the Articles permit the general partners to admit a new general or limited partner, new partners can only be admitted with the consent of all the partners.

(g) If the partners agree that one or more limited partners is to have priority over the other limited partners as to the return of his contribution or compensation by way of income or any other matter, such agreement must be recorded in the Articles. In the absence of any such statement in the Articles, all limited partners will benefit in proportion to their respective contributions.

(h) If the Articles do not stipulate the time in which the return of a limited partner’s contribution shall be made, or a specific event on the happening of which the return shall be made, a limited partner is entitled to demand the return of his contribution after he has given six months’ notice in writing to all other partners.

(i) Unless otherwise provided in the Articles, a limited partner shall only have the right to demand and receive cash in return for his contribution.

(j) Unless otherwise provided in the Articles, a limited partner’s interest in the partnership is assignable.

(k) Unless the Articles provide that the general partners can continue the business upon the retirement, death, incapacity, bankruptcy or insolvency of a general partner, the business can only be continued with the consent of all the partners.

(l) The Articles may contain provisions for the order of payment of the liabilities of the partnership on dissolution, after payment is made to creditors as provided by law. If no provisions are made in the Articles, the provisions of the Act will prevail.

(m) Unless otherwise stated in the Articles, on a dissolution of the partnership, limited partners participate in the partnership assets in respect of their claims for capital, profits or compensation by way of income on their contributions, respectively, in proportion to the amounts of such claims.

(n) The Articles may prescribe how any notice required to be given by a limited partnership to its partners is to be served. In the absence of such provision, service will be by way of personal service or by mail sent to the addresses of the partners set out in the Articles.

(o) Unless the Articles contain any restriction, limited partners have the same rights as general partners to apply to the Court for a dissolution of the partnership.

4.4 Amendments to the Memorandum and Articles

Any amendments to the Memorandum and Articles must be made in accordance with the provisions of the Articles. In the case of an amendment to the Memorandum, a supplementary Memorandum, subscribed to by the registered agent, must be filed at the Registry. The Registrar will then issue a Certificate of Amendment. Amendments must be made in the following circumstances:

(a) An amendment to the Memorandum must be made whenever any changes occur in the details required to be set out in the Memorandum.

(b) An amendment to the Articles must be made upon the return of the contribution of a limited partner where the Articles do not already provide for the return.

(c) An amendment to the Articles must be made to show the admission of additional limited partners or of a substituted limited partner (see paragraph 5.3 below).

5. PROVISIONS RELATING TO LIMITED PARTNERS

5.1 Return of contribution and other sums due

The Act provides that a limited partner is entitled to receive such share of profits or compensation by way of income as is stipulated in the Articles, provided that after the payment is made the partnership assets are sufficient to cover its liabilities (except the return of contributions to limited partners and any amounts due to general partners).

In addition, a limited partner is entitled to demand the return of his contribution (where the partnership assets are sufficient to cover the liabilities):

(a) where the time specified in the Articles for its return has arrived; or

(b) where the event specified for its return has occurred; or

(c) on dissolution of the partnership if the partnership business is not continued; or

(d) if the Articles do not provide for the time of return, after giving six months’ notice in writing to all the other partners.

(e) The return of his contribution to a limited partner can also be made with the consent of all the partners where the circumstances for return are not set out in the Articles.

In each case where the Articles do not provide for the return of contribution they will have to be amended to reflect the reduction or withdrawal of partnership property.

In the absence of any right in the Articles or the consent of all the partners, a limited partner is only entitled to receive cash in return for his contribution, irrespective of the nature of his contribution.

5.2 Liabilities of a limited partner

Generally, a limited partner is only liable for partnership debts or obligations up to the amount of his agreed contribution. He will, however, be liable as a general partner if his name appears in the firm name in contravention of the provisions of the Act (see paragraph 4.2(a) above) or if:

(a) he participates in the control of the partnership business; and

(b) any persons transacting business with the limited partnership reasonably believe, based upon his conduct, that he is a general partner.

A limited partner is liable to the partnership for the difference between any contribution actually made and that stated in the Articles as having been made, and for any future unpaid contribution which he has agreed in the Articles to make. Any money or property wrongfully paid or conveyed to the limited partner on account of his contribution, or any property stated in the Articles to have been contributed, but which has not been contributed, is held by the limited partner as trustee for the partnership.

Where a limited partner has assigned his interest in the partnership and his assignee has become a substituted limited partner, the assignor will still remain liable for any unpaid contribution as detailed above.

If the limited partner receives his contribution in violation of the provisions of the Act (for example, where the assets of the partnership are not sufficient to cover the liabilities, and he knew at the time of receipt that this was the case), he is liable to repay to the partnership the amount he has received.

On the death of a limited partner his estate will be liable for all his liabilities as a limited partner.

Unless otherwise agreed, a limited partner who has received all or any part of his contribution will have no liability in respect of it after three years from the date of receipt.

5.3 Assignment of interest by a limited partner

Unless otherwise provided in the Articles, a limited partner has the right to assign his interest in the partnership. An assignee only has the right to receive that share of profits or other compensation by way of income or return of contribution to which the assignor would have been entitled. There is no right to inspect the partnership books or to require any information or account of the partnership’s transactions.

An assignee may become a substituted limited partner and will then have all the rights and powers of the assignor and all the restrictions and liabilities (except those liabilities retained by the assignor in respect of unpaid contributions or the wrongful return of contributions (see paragraph 5.2 above)). An assignee may become a substituted limited partner in the following circumstances:

(a) where all the partners except the assignor consent;

(b) where the assignor is entitled to give the assignee the right to be a substituted limited partner pursuant to the Articles; or

(c) where the Articles allow the admission of the assignee on the prior approval of one or more partners, other than the assignor, and such approval is obtained.

An assignee will only become a substituted limited partner when the Articles have been amended to show his admission as a substituted limited partner. If the name of the assignor also appears in the Memorandum, this will also have to be amended before the assignee can become a substituted limited partner.

5.4 Priorities between limited partners

Where a partnership has several limited partners, the partners may agree that one or more of the limited partners shall have priority over the others as to return of contributions, compensation by way of income or any other matter. If such an agreement is made, it must be set out in the Articles. If not, all the limited partners shall benefit equally in proportion to their contributions actually made.

5.5 Loans by a limited partner to the limited partnership

A limited partner may loan money to or transact other business with the limited partnership, and if not also a general partner, may be treated the same as other general creditors of the limited partnership and receive a pro rata share of the assets of the partnership on dissolution. A limited partner may not, however;

(a) take security over the partnership property for the loan or receive any payment from a general partner or the partnership; or

(b) take a release from liability towards the partnership if at the time, the assets of the partnership are not sufficient to discharge its liabilities.

5.6 Creditors of limited partners

The Act specifically provides that the judgement creditor of any limited partner may seek a Court order charging the interest of the limited partner in the partnership and/or appointing a receiver of the limited partner’s interest. It also provides that the Court may make any other orders, directions or enquiries that it deems necessary in the circumstances. The limited partner’s interest to be charged may be redeemed with the separate property of any general partner, but not out of partnership property.

5.7 Person being both limited partner and general partner

A partner who is both a general and a limited partner in the same partnership has all the rights, powers and restrictions of a general partner, except that in respect to his contribution as a limited partner, he has the same rights of a limited partner against the other partners.

5.8 Death of a limited partner

On the death of any limited partner, his executor or administrator has all the rights of the limited partner for the purpose of settling the limited partner’s estate and constituting his assignee, if any, a substituted limited partner.

5.9 Admission of new partners

After the formation of a limited partnership, additional limited partners may be admitted by making an amendment to the Articles. An amendment to the Memorandum will be necessary on the admission of additional general partners. The general rule is that, subject to any agreement to the contrary, new partners can only be admitted with the consent of all the partners. In relation to a limited partnership, general partners will only have the power to admit new general or limited partners without the consent of or ratification of their action by the limited partners, if such power is set out in the Articles.

5.10 Books and Records

The general partners of a limited partnership are required to maintain a register of limited partnership interests. The register must contain:

(a) the names and addresses of the limited partners;

(b) the amounts and dates of their contributions; and

(c) the amount and date of any payment representing a return of any part of a limited partner’s contribution.

The register must be held at the registered office of the limited partnership and will not, therefore, be available for inspection by the public. It must be updated within twenty one days of any changes. The register constitutes prima facie evidence of the matters it contains. Wilful failure by a general partner to comply with the requirement to maintain a register of limited partnership interests is an offence and may result in the imposition of a daily fine throughout the period for which the breach continues.

Other than the register of limited partnership interests, a limited partnership is only required to keep such accounts and records as the partners consider necessary or desirable to reflect the financial position of the partnership.

5.11 Inspection of Public Documents

Any member of the public may search the file of a limited partnership at the Registry in the British Virgin Islands on payment of a fee during normal office hours. The file of a limited partnership will contain the Memorandum of limited partnership, a copy of the Certificate of Limited Partnership, and where amendments have been made to the Memorandum, a supplementary Memorandum detailing the changes, together with a copy of the Certificate of Amendment. The file will also contain details as to whether annual licence fees have been paid and any other documents required by the Act to be filed at the Registry (such as Articles of Dissolution where the limited partnership is being wound up).

5.12 Tax

(a) International limited partnerships

An international limited partnership is exempt from the provisions of the British Virgin Islands Income Tax Act. All payments made by an international limited partnership to persons not resident in the British Virgin Islands, and all capital gains realised with respect to any interest in an international limited partnership held by persons who are not resident in the British Virgin Islands, are exempt from the Income Tax Act.

There is no stamp duty payable on instruments relating to transfers of property to or by an international limited partnership, on instruments relating to transactions in respect of the interests of an international limited partnership or on instruments relating to the business of an international limited partnership.

No estate, inheritance, succession or gift tax, rate, duty, levy or other charge is payable by persons not resident in the British Virgin Islands with respect to any interest in an international limited partnership.

(b) Local limited partnerships

A local limited partnership, and partners resident in the British Virgin Islands, will be subject to income tax in the British Virgin Islands. Stamp duty will be payable on instruments relating to property or transactions in the British Virgin Islands. Partners resident in the British Virgin Islands will be subject to all other taxes to which British Virgin Islands residents are liable.

5.13 Continuation

The Act provides that the provisions of the International Business Companies Act which deal with the continuation of companies apply mutatis mutandis to limited partnerships. It is not entirely clear what this means, but one view is that it is intended to mean that a limited partnership may move jurisdiction by continuing as a limited partnership under the laws of another jurisdiction where the laws of that jurisdiction permit continuation and that limited partnerships formed in another jurisdiction may continue in the British Virgin Islands by filing Articles of Continuation together with the Memorandum of Limited Partnership amended as necessary to comply with the provisions of the Act.

5.14 Investigation of a limited partnership and production of documents

The Act contains provisions allowing the appointment of an Inspector to investigate the affairs of a limited partnership on the application of the limited partnership or of partners holding not less than a one fourth interest in the partnership. The Inspector must report to the Minister of Finance and the Minister may petition the Court for the dissolution of the limited partnership or he may require the limited partnership to take such measures as he thinks is necessary.

The Act also contains provisions enabling the Minister of Finance to obtain documents belonging to a limited partnership and provisions for the issue of a search and seizure warrant subject to various safeguards in respect of privileged information.

5.15 Service of Process and Notices

Any summons or other document required to be served on a limited partnership may be served by;

(a) leaving it at, or sending it to (by registered mail addressed to the limited partnership), its registered office; or

(b) leaving it with, or by sending it to (by registered mail), the registered agent.

(For service of notices on the partners by the limited partnership see also paragraph 4.3(n) above).

5.16 Striking Off

A limited partnership (unlike an international business company), will not automatically be struck off the Register for contravention of those sections of the Act which set out the activities in which it is not permitted to engage, nor will it be struck off for failure to pay annual licence fees (but see paragraph 5.18 below).

A limited partnership will be struck off the Register for failure to register a supplementary Memorandum changing its registered agent after its registered agent has given it notice that it no longer desires to act as registered agent, or on the death, or revocation of the licence of the registered agent.

A limited partnership that has been struck off the Register remains liable for all claims debts and obligations of the limited partnership and the liability of the partners is not affected. Where the name of a limited partnership has been struck off the Register all licence fees, penalties and other fees due under the Act have priority to all other claims against the assets of the partnership.

The Act contains no provisions for the restoration of the name of a limited partnership to the Register but it does reserve power to the Governor in Council to make regulations to provide for restoration to the Register.

5.17 Winding-up and Dissolution

The dissolution of a limited partnership will occur in the same circumstances as the dissolution of a general partnership (see paragraph 2.11 above). There are, however, some differences in the circumstances for winding up. These are as follows:

(a) In a limited partnership, the partners may prevent limited partners, by a restriction set out in the Articles, from applying to the Court for an order that the partnership be dissolved.

(b) The retirement, death, incapacity, bankruptcy or insolvency of a general partner dissolves the partnership unless the business is continued by the remaining general partners if a right to do so is set out in the Articles, or with the consent of all the partners.

(c) A limited partner may have the partnership dissolved when;
  • he rightfully but unsuccessfully demands the return of his contribution, or
  • when the other liabilities of the partnership have not been paid or the partnership property is insufficient to pay them and the limited partner would otherwise be entitled to the return of his contribution.

The general partners of a limited partnership required or proposing to wind up and dissolve the partnership must approve a plan of dissolution which has to contain, amongst other things, the names of the liquidator or liquidators who will effect the winding up. The general partners then have to file Articles of Dissolution (which include the plan of dissolution) with the Registrar. After the required notices have been advertised and the liquidator has completed the winding up and submitted to the Registrar a statement that the winding up and dissolution is complete, the name of the partnership will be struck off the Register and the Registrar will issue a Certificate of Dissolution.

Where (in the case of a dissolution other than a dissolution by the Court) the general partners or the liquidator determine that the partnership will not be able to pay or provide for the payment of its debts, notice must immediately be given to the Registrar and all winding up and dissolution proceedings thereafter will take place in accordance with the relevant provisions of the Companies Act relating to winding up and dissolution of companies. Such a winding-up may be supervised by the Court.

5.18 Fees payable by a limited partnership (as of October 1999)

(a) On Incorporation

US$500.00 for registration of the Memorandum of limited partnership.

(b) Annual licence fees

A limited partnership whose name is on the Register on 31st December of any year has to pay, before 30th April of the following year, an annual licence fee of US$500.00. The amount of the licence fee increases in stages according to the length of delay in payment. Although the Act does not contain provisions for striking the name of the limited partnership off the Register for non payment of annual licence fees, since the Governor in Council has power to make regulations providing for the conduct and regulation of the registration of limited partnerships under the Act it is possible that regulations in relation to striking off will be made in the future.

(c) Other fees

A fee is payable on the registration of a supplementary Memorandum amending the Memorandum of a limited partnership and for the issue of a certificate of limited partnership or good standing other than at the time of registration of a limited partnership.

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