SEPARATE LEGAL PERSONALITY

Separate Legal Personality and Limited Liability

Separate Legal Personality and Limited Liability

The Limited Partnerships Act 2008 came into force on 2 May 2008, with the associated changes in the Taxation (Limited Partnerships) Act 2008 taking effect from 1 April 2008. Although attracting international capital and providing a familiar venture capital structure may have been the main drivers behind the regime, limited partnerships can be used to carry on or undertake any business or activity. For some businesses and business ventures the limited partnership structure may be a more suitable vehicle than a company. Limited partnership A limited partnership is a hybrid of a general partnership and a company. It is a separate legal personality and those who participate as limited partners have limited liability (Hay, 2008).

A limited partnership is formed by registration at the Companies Office. It must have a written partnership agreement and the Act specifies certain things that must be contained in the partnership agreement, including provisions relating to the assignment and disposal of interests, entitlement to distributions, meetings, entry and exit of partners, and termination. Partners, anyone can be a partner in a limited partnership. There is no limit on the number of general and limited partners in a limited partnership but it must have at least one general partner and one limited partner. General partners are the partners who are responsible for the management of the partnership. Limited partners are usually investors and are prohibited from taking part in the management of the partnership. Both general partners and limited partners may have a capital interest in the partnership.

General partners are liable for the unpaid debts of the limited partnership to the extent that the debts cannot be met by the partnership itself. If there is more than one general partner, they are jointly and severally liable. Limited partners have limited liability, which means that their liability is limited to the amount of any capital contribution they have made. A limited partner may, however, be liable for certain partnership debts if they take part in the management of the partnership. The Act does not define what constitutes taking part in the management of a limited partnership but it does outline certain safe harbors - activities that will not constitute taking part in the management of a limited partnership. These activities can be broken down into three broad categories. • Taking part in strategic or significant decisions e g the approval or vetoing of certain proposed investments, change in partnership business, disposal of the business or the acquisition of another business. • Different capacities in which the limited partners are entitled to act e g being a director or employee of, or contractor to, or shareholder in a general partner that is a body corporate does not constitute taking part in management. • Rights and powers that limited partners may exercise e g bringing a derivative action on behalf of the partnership in accordance with the Act. These safe harbors allow limited partners to have a role in ...