KEY POINTS:
Nick Wells, a partner at Chapman Tripp barristers and solicitors, on whether to swap your company structure for a limited partnership
What is a limited partnership? Why use one?
This is hybrid structure which draws from company and partnership law. For investors, a limited partnership provides the limited liability protection of a company, and some of the flow-through tax and confidentiality advantages of a partnership. They are simple to use and provide tax benefits, such as the ability to use losses or pass through capital gains more easily.
When and how have these limited partnerships come about in New Zealand?
They emerged as a result of consultation between industry bodies and Government officials, and with the passing of the Limited Partnerships Act in March. The act is a modern, flexible and internationally recognisable structure that will hopefully put the country in a better position to attract international investment.
What are some of the key features of a limited partnership?
The act came into force on May 2, from when limited partnerships could be formed on registration with the Companies Office. They are less regulated than companies. with about a third of the number of sections in the act compared to the Companies Act.
The Limited Partnerships Act requires every limited partnership to have a limited partnership agreement.
Unlike a company's constitution, this agreement is not publicly disclosed and is not registered with the registrar. It is a separate legal entity from its owners, helping to protect investors from losses and claims arising from its business activities.
Subject to any restriction in the agreement, the general partners and limited partners may make capital contributions to the limited partnership, entitling them to a share of the partnership interest.
What are the roles played by the partners of a limited partnership?
The general partner manages the business and is responsible for the debts and obligations of the limited partnership if the partnership itself cannot meet them.
A general partner may be a company. Limited partners are essentially passive investors and their liability is typically limited to the capital they contribute - provided they do not take part in the management of the limited partnership.
Do you expect limited partnerships to be used much in New Zealand?
We expect them to prove popular with the investment community and anticipate they will be widely used by small and large businesses.
There are at least 13 already registered and Maui Capital registered the first limited partnership under the act on May 2 as part of its $230 million-plus raising. If you looking to establish a business or investment vehicle, limited partnerships are worth raising with your adviser.
