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Partnerships (Limited partnership (Comprises limited partners who invest…
Partnerships
Limited partnership
Comprises limited partners who invest in the partnership and one or more general partners, who manage the partnership.
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Each partner is jointly and severally liable for losses and debts incurred by the LP but only to the extent of the amount of capital committed less the amount already contributed
General partners also have unlimited liability for the debts of the partnership and tend to be formed as limited liability companies in order to limit their liability
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In the UK limited partnerships do not have to file accounts unless the partners themselves all have limited liability. The requirement to file accounts is connected to the ability of creditors to pursue at least one partner with unlimited liability
A number of offshore jurisdictions allow LPs to have their own separate legal identity and this type of partnership is favoured by promoters of private equity funds who, inter alia, prefer the LPs assets to be recorded in its own name
In Guernsey, the Limited Partnership Law (1995) allows LPs to elect to have a separate legal personality upon initial registration meaning they are treated as a body corporate in certain circumstances
In Jersey, the introduction of LP legislation in 2011 allowed for the formation of Separate Limited Partnerships, which are not body corporate, and Incorporated Limited Partnerships which are body corporates
LPs are used in fund structures whereby limited partners invest through the LP and the GP, a limited company, undertakes the management function
The limited partners have limited liability providing they remain passive investors and subject to certain exceptions do not participate in the management of the LP
The GP performs the management function and has unlimited liability. The relationship between the limited partners and the general partners is set out in the limited partnership agreement
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General partnership
Does not have a separate legal personality and each partner is responsible for losses and debts incurred by the partnership
Usually governed by its own partnership agreement, a legal contract between all the partners about how the partnership should be run and the allocation of profits and losses to the partners. The allocation does not have to be in equal shares
If no partnership agreement exists, there are statutory provisions which apply. In the UK this is the Partnership Act 1890 which ensures that partnerships are made without the formality of an agreement will operate in an appropriate manner
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Common for business people to pool risk by going into partnership with each other. This was the same as being a non-limited sole trader but gave additional security to creditors as there were more principals involved to whom recourse could be made if one for the other partners failed
Transparent for tax purposes, i.e the partnership is not taxed but each of the partners is taxed on his or her share of the profits
General partner: The person who assumes the management responsibility for the limited partnership. The general partner has unlimited liability for the debts and obligations of the partnership and therefore is typically a limited company
Limited partnership agreement: A written document setting out the powers and obligations of the limited partners and of the GP. It will include the name of the LP and GP, will state the purpose for which the LP was formed will set out how income and capital should be allocated, how distributions should be made, the various rights and obligations of both parties (eg the obligation for eh GP to contribute to the debts of the LP) and the administrative arrangements