Investment Limited Partnerships 101 (Part 5) Liability Of Limited Partners

Enhancements to the Irish regime governing investment limited partnership (the "ILP") have led to increased interest in this structure as an option when considering the establishment of a new investment fund. The Walkers - Investment Limited Partnerships 101 (Part 1): Key Features (walkersglobal.com) first part of our advisory series provided answers to the key questions on the features of the ILP; the Walkers - Investment Limited Partnerships 101 (Part 2) (walkersglobal.com)second part covered the asset classes for which a partnership structure is typically considered and the recent guidance for certain closed ended funds from the Central Bank of Ireland (the "Central Bank"); the Walkers - Investment Limited Partnerships 101 (Part 3) - Service Providers (walkersglobal.com) third part considered the service providers that can be appointed to act for an ILP; and the Walkers - Investment Limited Partnerships 101 (Part 4): Authorisation Process (walkersglobal.com)fourth part set out the authorisation process for an ILP. This part considers the liability of investors for the debts of an ILP.

The liability of investors, as limited partners in an ILP, is generally limited to the amount of capital committed by an investor to the ILP. A limited partner will not be liable for the debts or obligations of the ILP beyond the amount of the partnership property contributed by the limited partner which is available to the general partner to meet such debts or obligations. However, there are circumstances where limited partners may be exposed to further liability, including in the event that they take part in the conduct of the business of the ILP. A white list or list of safe harbour activities is set out in the Investment Limited Partnerships Acts 1994 and 2020 (the "Acts"), being a list of activities that can be engaged in by limited partners without such partners being considered to be taking part in the conduct of the business of the ILP.

Irrespective of the frequency of such acts, a limited partner does not take part in the conduct of the business of an ILP solely by engaging in any one or more of the following:

1. being a contractor for, or being an agent or employee of, the ILP or a general partner or acting as a director, officer or shareholder of a general partner which is a body corporate;
2. consulting with and advising a general partner with respect to the business of the ILP;
3. investigating, reviewing, or being advised as to the accounts or business affairs of the ILP or exercising any right conferred by the Acts;
4. acting as surety or guarantor or providing any other form of security for the ILP either generally or in respect of specific obligations;
5. voting as a limited partner on one or more of the following matters:

1. the dissolution and winding up of the ILP;
2. the purchase, sale, exchange, lease, mortgage, pledge, or other acquisition or transfer of any asset or assets by or on behalf of the ILP;
3. the incurring or renewal of any indebtedness of the ILP;
4. change in the objectives or policies of the ILP;
5. the admission, removal or withdrawal of a general or limited partner or depositary and the continuation of the business of the ILP thereafter;
6. transactions in which one or more of the general partners have an actual or potential conflict of interest with one or more of the limited partners;
7. a decision to approve an alteration in the limited partnership agreement; oror

6. participating in any of the below:

1. serving on any board or committee (such as an advisory committee) of the ILP, or established by, or as provided for in the limited partnership agreement in respect of, a general partner, the limited partners or the partners generally;
2. appointing, electing or otherwise participating in the choice of a representative or any other person to serve on any such board or committee;
3. acting as a member of any such board or committee either directly or by or through any representative or other person, including giving advice in respect of, or consenting or refusing to consent to, any action proposed by the general partner on behalf of the ILP and exercising any powers or authorities or performing any obligations as a member of any such board or committee in the manner contemplated by the limited partnership agreement.

One final point to note in relation to the limited liability of limited partners is that the Acts stipulate that no proposed limited partner of an ILP, in relation to which an application for authorisation has been made, will have the benefit of limited liability in relation to the debts of the ILP until the date of the certificate of authorisation of the ILP has been issued by the Central Bank.

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.