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Alimited partnership (LP) is a type ofpartnership withgeneral partners, who have a right to manage the business, andlimited partners, who have no right to manage the business but have onlylimited liability for its debts.[1] Limited partnerships are distinct fromlimited liability partnerships in which all partners have limited liability.
The general partners (GPs) are, in all major respects, in the same legal position as partners in a conventional firm: they have management control, share the right to use partnership property, share the profits of the firm in predefined proportions, and havejoint and several liability for thedebts of the partnership.
As in a general partnership, the GPs have actual authority, asagents of the firm, to bind the partnership incontracts with third parties that are in the ordinary course of the partnership's business. As with a general partnership, "an act of a general partner which is not apparently for carrying on in the ordinary course the limited partnership's activities or activities of the kind carried on by the limited partnership binds the limited partnership only if the act was actually authorized by all the other partners" (i.e., if a general partner does something that is outside the usual business of the limited partnership, the partnership will only be legally bound by that action if all the other partners actually agreed to it).[2]
Likeshareholders in acorporation, limited partners havelimited liability. That means that the limited partners have no management authority and, unless they obligate themselves by a separate contract such as a guarantee, are not liable for the debts of the partnership. The limited partnership provides the limited partners a return on their investment (similar to adividend), the nature and extent of which is usually defined in the partnership agreement. General Partners thus bear more economic risk than do limited partners, and in cases of financial loss, the GPs are personally liable.
Limited partners are subject to the same alter-egopiercing theories as corporate shareholders. However, it is more difficult to pierce the limited partnership veil because limited partnerships do not have many formalities to maintain. So long as the partnership and the members do not co-mingle funds, it would be difficult to pierce the veil.[3] In some jurisdictions (for instance in the UK), the limited liability of the limited partners is contingent on their not participating in management.
Partnership interests (including the interests of limited partners) are afforded a significant level of protection through thecharging order mechanism. The charging order limits the creditor of a debtor-partner or a debtor-member to the debtor's share of distributions, without conferring on the creditor any voting or management rights.[citation needed]
When the partnership is being constituted, or the composition of the firm is changing, limited partnerships are generally required to file documents with the relevantstate registration office. Limited partners must explicitly disclose their status when dealing with other parties, so that such parties are on notice that the individual negotiating with them carries limited liability. It is customary that the documentation and electronic materials issued to the public by the firm will carry a clear statement identifying the legal nature of the firm and listing the partners separately as general and limited. Hence, unlike the GPs, the limited partners do not have inherentagency authority to bind the firm unless they are subsequentlyheld out as agents (and so create an agency byestoppel); or acts of ratification by the firm create ostensible authority.
Thesocietates publicanorum, which arose inRome in the third century BC, may have arguably been the earliest form of limited partnership. During the heyday of theRoman Empire, they were roughly equivalent to today'scorporations. Some had many investors, and interests were publicly tradable. However, they required at least one (and often several) partners with unlimited liability.[4] A very similar form of partnership was present in Arabia at the time of the coming of Islam (c. 700CE) and this became codified into Islamic law as theqirad.
In medievalItaly, a business organization known as thecommenda appeared in the 10th century that was generally used for financing maritime trade. In a commenda, the traveling trader of the ship had limited liability, and was not held responsible if money was lost as long as the trader had not violated the rules of the contract. In contrast, his investment partners on land had unlimited liability and were exposed to risk. Acommenda was not a common form for a long-term business venture as most long-term businesses were still expected to be secured against the assets of their individual proprietors.[5] As an institution, the commenda is very similar to the qirad, but whether the qirad transformed into the commenda or the two institutions evolved independently cannot be stated with certainty.[6]
In theMongol Empire, the contractual features of a Mongol-ortoq partnership closely resembled that ofqirad and commenda arrangements, but Mongol investors were not constrained using uncoined precious metals and tradable goods for partnership investments and executed money-lending.[7] Moreover, Mongol elites formed trade partnerships with merchants from Italian cities, includingMarco Polo's family.[8]
Colbert's Ordinance (1673) and theNapoleonic Code (1807) reinforced the limited partnership concept under European law. In theUnited States, limited partnerships became widely available in the early 19th century, although a number of legal restrictions at the time made them unpopular for business ventures. Britain enacted its first limited partnership statute in 1907.[9]
Akommanditselskab (abbreviated K/S) is the Danish equivalent of the limited partnership. The owners are divided into general partners (komplementarer in Danish) and limited partners (kommanditister in Danish). Often, the only general partner of a K/S is an Anpartsselskab with the least possible capital, thus reducing the liability of the K/S to the capital of the Anpartsselskab.
Kommanditgesellschaft auf Aktien – abbreviatedKGaA – is a Germancorporate designation standing for 'partnership limited by shares', a form of corporate organization roughly equivalent to amaster limited partnership. AKommanditgesellschaft auf Aktien has two types of participators. It has at least one partner with unlimited liability (Komplementär). It is in that sense a private company. Komplementärs arenatural persons orlegal persons. If the Komplementär is a corporation with limited liability then the type of the company has to be named asUG (haftungsbeschränkt) & Co. KGaA,GmbH & Co. KGaA,AG & Co. KGaA orSE & Co. KGaA.[10] Under consideration of the aspects of European freedom of establishment it is also possible that corporations established under foreign law can become Komplementärs of a KGaA forming companies likeLimited & Co. KGaA.
The investment of thepartners withlimited liability (Kommanditisten) is the stock of the company (Grundkapital) and divided into shares. A KGaA is in that aspect comparable with a GermanAktiengesellschaft.
The investment of all partners is the corporate's total capital (Gesamtkapital). The KGaA is a traditional type of very largefamily businesses (that are partly publicly traded) in Germany; the consumer products giantHenkel, pharmaceutical companyMerck and media conglomerateBertelsmann are prominent examples.[11] In case of Merck, besides the owning family Merck also the members of the executive board are fully and privately liable for the company (including a period after withdrawal). Also the German football clubBorussia Dortmund uses this corporate organization (asBorussia Dortmund GmbH & Co KGaA) for its professional football team as part of its compliance with the "50+1 rule".
Hong Kong offers two forms of limited partnerships, namely limited partnerships governed by theLimited Partnership Ordinance and limited partnership funds, known as "LPFs", governed by theSecurities and Futures Ordinance. Neither limited partnerships nor LPFs are separate and distinct legal persons. Instead, they are simply partnerships of persons, some of whom enjoy limited liability as a result of compliance with statutory requirements. Like many other jurisdictions, the partners who enjoy such limited liability are known as limited partners and their limited liability is contingent upon them not taking an active role in the management of the partnership.[12]
LPFs were introduced in 2020 and are intended to provide a domestic Hong Kong vehicle for private equity funds.[13]
Japanese law has historically provided for two business forms similar to limited partnerships:
In 1999, theDiet of Japan passed legislation enabling the formation of "limited partnerships for investment" (投資事業有限責任組合,tōshi jigyō yūgen sekinin kumiai). These are very similar to Anglo-American limited partnerships, in that they adopt most provisions ofgeneral partnership law but provide for limited liability for certain partners. Profits of an investment limited partnership pass through to all partners proportional to their investment share. For tax purposes, profits and losses will pass through only to the general partner(s) while the partnership hasnegative equity (i.e. liabilities exceeding assets); however, profits and losses while the partnership has positive equity are shared equally.
InNew Zealand, Limited Partnerships are a form of partnership involving General Partners, (who are liable for all the debts and liabilities of the partnership) and Limited Partners (who are liable to the extent of their capital contribution to the partnership). The Limited Partnerships Act 2008 replaces Special Partnerships that exist under Part 2 of the Partnership Act 1908. Special partnerships are considered obsolete as they do not provide the appropriate structure preferred by foreign venture capital investors.
Features of Limited Partnerships include:
The registers of Limited Partnerships and Overseas Limited Partnerships are administered by the New ZealandCompanies Office. Registration, maintenance and annual return filing for Limited Partnerships and Overseas Limited Partnerships are conducted through manual forms.
| Act of Parliament | |
 | |
| Long title | An Act to establish Limited Partnerships. |
|---|---|
| Citation | 7 Edw. 7. c. 24 |
| Territorial extent | United Kingdom |
| Dates | |
| Royal assent | 28 August 1907 |
| Commencement | 1 January 1908[b] |
| Other legislation | |
| Amended by | Perjury Act 1911 |
Status: Amended | |
| Text of statute as originally enacted | |
| Revised text of statute as amended | |
| Text of the Limited Partnerships Act 1907 as in force today (including any amendments) within the United Kingdom, fromlegislation.gov.uk. | |
In theUnited Kingdom, limited partnerships are governed by theLimited Partnerships Act 1907 and, on matters on which that act is silent, also by thePartnership Act 1890. The UK Department for Business, Enterprise and Regulatory Reform (now theDepartment for Business and Trade) consulted in 2008 on proposals to modify and merge the two acts,[14] but the proposals did not go ahead.
Scots law on partnerships (including limited partnerships) is distinct fromEnglish law. Under Scots law, partnerships are legal persons distinct from the partners.[15] However, lawsuits may still be filed against the partners by name,[15] the general partners are still exposed to 'pass-through' liability, and partners are still jointly and severally liable (although in the case of limited partners, only to the extent of their capital contribution). There has been discussion over whether limited partnerships operating under English law should be made separate legal entities as under Scots law, and in the same way as limited liability partnerships are. TheLaw Commission report on partnership lawLC283 suggested that creation of separate legal personality should be left as an option for the partners to decide upon when a partnership is formed. There were concerns that automatically making partnerships separate legal entities would restrict their ability to trade in some European countries and also expose them to different tax regimes than expected.
| Legislative Reform (Private Fund Limited Partnerships) Order 2017 | |
|---|---|
| Statutory Instrument | |
 | |
| Citation | SI 2017/514 |
| Dates | |
| Made | 29 March 2017 |
| Commencement | 6 April 2017 |
| Other legislation | |
| Made under | |
| Text of statute as originally enacted | |
TheLegislative Reform (Private Fund Limited Partnerships) Order 2017 (SI 2017/514) made provision for partners to register their limited partnership as a "Private Fund Limited Partnership" (PFLP), which is available forcollective investment schemes constituted by an agreement in writing.[16] The order relaxed the rules applying to private fund partnerships in order to remove some uncertainty in the application of the law, reduce administrative costs, and help ensure "that the UK remains an attractive and competitive location for private investment funds in comparison to other jurisdictions".[17] The relaxation of the law in relation to PFLPs was welcomed by the financial industry.[18]
In theUnited States, the limited partnership organization is most common amongfilm production companies and real estate investment projects, or in types of businesses that focus on a single or limited-term project. They are also useful in "labor-capital" partnerships, where one or more financial backers prefer to contribute money or resources while the other partner performs the actual work. In such situations, liability is the driving concern behind the choice of limited partnership status. The limited partnership is also attractive to firms wishing to provide shares to many individuals without the additional tax liability of a corporation.Private equity companies almost exclusively use a combination of general and limited partners for their investment funds. Well-known limited partnerships includeEnterprise Products andBlackstone Group (both of which arepublic companies), andBloomberg L.P. (aprivate company).
Before 2001, the limited liability enjoyed by limited partners was contingent upon their refraining from taking any active role in the management of the firm. However, Section 303 of the Revised Uniform Limited Partnership Act (if adopted by a state legislature) eliminates the so-called "control rule" with respect to personal liability for entity obligations and brings limited partners into parity with LLC members, LLP partners and corporate shareholders.
The 2001 amendments to theUniform Limited Partnership Act (to the extent the amendments are adopted by state legislature) also permitted limited partnerships to becomelimited liability limited partnerships in states that adopt the change. Under this form, debts of a limited liability limited partnership are solely the responsibility of the partnership, thereby removing general-partner liability for partnership obligations. This change was made in response to the common practice of naming a limited-liability entity as a 1% general partner that controlled the limited partnership and organizing the managers as limited partners. This practice granted a general partner de facto limited liability under the partnership structure.[19]
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