Partnerships: limited partnership: overview
A limited partnership is one in which at least one of the partners restricts their liability for the debts and obligations of the firm to a pre-determined sum, instead of bearing unlimited liability as a partner normally does.
A limited partnership is governed by the Limited Partnership Act 1907. In addition a limited partnership is subject to the Partnership Act 1890 and general partnership law except where these are overruled by the Limited Partnership Act 1907.
The limited partnership must consist of at least one general partner who manages the business and bears unlimited liability to creditors, and at least one limited partner. The limited partner must contribute a specified amount of capital on joining the firm, which they cannot withdraw as long as they remain a limited partner. They cannot be made to bear any liability to creditors or their fellow partners in excess of that amount plus any undrawn profits. A limited partnership must register with the Registrar of Limited Partnerships in Cardiff, Edinburgh or Belfast as appropriate. Failure to register deprives it of its limited liability.
The limited partner may not bind the firm and may not take part in the management of the firm’s business. If they do, they lose their limited liability.
Because they are bound by the partnership deed and because their general partners act as their agent, a limited partner does carry on the business of the firm despite the restrictions on their rights and powers.
Limited partners, in the same way as other partners in the partnership are taxed on their share of the profit from a trade or profession carried on by the partnership as if it were derived from a ‘notional’ trade or profession that they carry on alone.
The relief available to a limited partner for losses is subject to special restrictions - see BIM82105.
A limited partner is not entitled to relief for interest on money borrowed to introduce into the business.
The British Venture Capital Association has agreed guidelines on the use of limited partnerships as vehicles for investment in the UK. These guidelines are to be found at CTM36580.