Limited partnerships

Question 1

explain the structure of a limited partnership and each role

Answer 1

consists of at least 1 general partner & at least 1 limited partner

General partners = have full management of the company but unlimited liability

Limited partners = have limited liability but cannot have any control/power over the business or remove their capital contribution

If a limited partner becomes involved in management of the LP they will be liable for all debts and obligations incurred whilst they were involved in management

Question 2

how is a limited partnership formed?

Answer 2

it must be registered at CH (LP agreement need not be filed)

Question 3

what governs a limited partnership?

Answer 3

The LP is governed by the Partnership Act 1980 & common law (except where the common law conflicts with the PA) unless there is a written partnership agreement

Question 4

when might a limited partnership be suitable?

Answer 4

where some partners do not intend to be involved in the management of the business so are happy to be limited partner (i.e. LP used as an investment vehicle)

Question 5

how is the limited partnership taxed?

Answer 5

Each partner pays tax on their share of the profits (individual partners pay IT + CGT, companies pay corporation tax)

Question 6

what are the advantages of a limited partnership? (3)

Answer 6

• Limited liability of the limited partners (if a general partner was a company, then this partner would also have limited liability by virtue of their company status)
• Minimal information to be disclosed to CH (finances only in rare circumstances)
• No filing requirements once established

Question 7

what are the disadvantages of limited partnerships? (3)

Answer 7

• Does not have SLP
• More costly to start the business (due to registration fees)
• limited partners must be cautious to not be involved with the management etc of the company or they will lose their limited liability protection