General information about New Zealand Limited Partnership
A New Zealand Limited Partnership is an incorporated and separate legal entity and, subject to any restrictions contained in the limited partnership agreement, has the legal capacity to exercise all the powers of a natural person or company.
Unlike a trust a Limited Partnership may exist in perpetuity. Limited Partnerships are a form of partnership involving General Partners and Limited Partners. Both type of partenrs can contribute to the Limited Partnership. Capital contributions can take any form (including services) but loans are excluded as capital contributions.
Partners who have made capital contributions are entitled to receive distributions. It is usual for only the LPs to make capital contributions and to be entitled to receive distributions pro rata to their capital contribution.
Limited Partnerships can be used for asset planning in a number of different ways. The legislation does not restrict the types of uses for limited partnerships. They can carry out business and hold assets of any nature in any part of the world.
The most significant drawback of a Limited Partnership for collective investment purposes seems to be the inability to unitise individual interests in the fund. Individual interests are instead calculated as a percentage of the net asset value of the total assets.
Main benefits of a New Zealand LLP are:
1. limited liability;
2. separate legal personality; and
3. fiscal transparency.
Advantages of a Limited Partnership:
- No registration is required to start a partnership
- Can be an effective way to share business operation costs (for example, several professional people operate out of a joint office).
Disadvantages of a Limited Partnership:
- Partners may be liable for debts incurred by other partners
- Putting personal assets at risk (for General Partner)
- Possible partnership conflicts
- Possible complications if a partner dies, or wishes to leave the partnership.
All New Zealand Limited Partnerships must be registered under the Limited Partners Register.
A Limited Partnership must have:
- A registered New Zealand office address
A New Zealand address for service
- A postal address; and
- An email address.
The registered office address and address for service must be physical addresses in New Zealand ie cannot be a Private Bag, DX or a 'virtual office' (that is a mail/message collection point).
The name of the Limited Partnership must include the words 'Limited Partnership' or the abbreviation 'LP' or 'L.P.' at the end of the name.
A Limited Partnership is separate from its partners and must have:
- a general partner ("GP")
- and at least one limited partner ("LP").
Any person or company can be a partner, and there is no limit on the number of partners. Usually there will be one GP and each party who contributes to the working capital of the Limited Partnership will be a LP. A partner does not need to be a New Zealand resident. It is common for either one or both of the General and Limited Partners to reside outside of New Zealand. Having non-resident partners can be advantageous in terms of tax.
The GP is responsible for the management and administration of the Limited Partnership and is jointly and severally liable with the Limited Partnership for all the debts and liabilities of the Limited Partnership. A GP is normally a limited liability company with no significant capital of its own and is not required to make a capital contribution to the Limited Partnership.
The Limited Partner's liability is similar to that of a company shareholder in that it is limited to its capital contribution.
Limited Partnerships must have a written partnership agreement which is similar to a contract made between the GP and each LP. The partnership agreement is not publicly registered. At the time of registration the applicant must certify to the Registrar of Limited Partnerships that the limited partnership agreement complies with the Limited Partnerships Act 2008.
Regulation and taxation
The Limited Partnerships Act 2008 came into force on 2 May 2008 enabling registration of Limited Partnerships and Overseas Limited Partnerships.
The General Partner/Agent must certify that the proposed partners of the Limited Partnership have entered into a partnership agreement and that it complies with the Limited Partnership Act 2008.
In order to comply there are a number of essential requirements including:
1. provisions which deal with restrictions on a LP's ability to assign partnership interests;
2. a description of the nature of business able to be undertaken and any restrictions thereto;
3. provisions which deal with entitlements to distributions;
4. procedures for meetings of the partners;
5. provisions dealing with financial statements and audit requirements;
6. provisions dealing with partners entering and leaving the Limited Partnership;
7. a mechanism dealing with termination of the Limited Partnership;
8. provisions dealing with possible conflicts of interests.
The partnership itself does not pay income tax. Instead it distributes the partnership income to the partners. The partners then pay tax on their own share. Income, tax credits, rebates, gains, expenditure or losses allocated to a partner in an income year will generally be allocated in proportion to each partner's share in the partnership's income under the partnership agreement.
Similar to Look-Through Company regime
, all profits generated by the Limited Partnership will flow through the structure to the limited partners who will each be taxed as appropriate to them. If there are a number of limited partners within the same family then income can be split between them thereby reducing the overall tax liability.
New Zealand Resident Limited Partner will be subject to tax in NZ at the marginal rate is applicable to them.
Non-resident LP will not be subject to tax in New Zealand on their share of the income generated by the Limited Partnership - provided that the income does not have an New Zealand source.
A limited partnership will not be subject to tax on its profits in New Zealand. All profits flow through the structure and are taxed in the investors' own jurisdictions.