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Limited partnerships seem to be growing in popularity. The limited partnerships act was passed in 2008, so the structure is no longer something new. There are now over 500 registered, and they seem to be increasingly used as a business what are some ways to make money vehicle. There are a number of advantages to limited partnerships (as well as disadvantages), and they can usefully be used in a range of what are some ways to make money situations. But they must be used critically. As the use of a limited partnership structure becomes more what are some ways to make money common, further issues – what we could call ‘second generation issues’ – are likely to arise. This article briefly outlines what limited partnerships are, before considering when they are most useful, when they are not useful, and the key issues that need attention for those forming what are some ways to make money or considering a limited partnership structure. Limited partnerships

Each limited partnership (properly abbreviated as ‘LP’ not ‘LLP’) is governed by the limited partnerships act 2008. An LP consists of a general partner, and at least one limited partner. The general partner is essentially the manager of the partnership, while the limited partners are the investors in the partnership. The limited partners cannot be involved in the management of what are some ways to make money the partnership, though the act contains various “safe harbours” which make it relatively easy to structure arrangements so that what are some ways to make money the limited partners can do so in a permissible way what are some ways to make money – for example, by making the general partner a company, and the limited partners (or their associates) directors of that company. Because of potential liabilities on the general partner, the general partner is often a company.

A limited partnership is a legal entity separate from its what are some ways to make money partners. In this way, it is like a company, which has a legal identity separate from its shareholders: both a company and an LP can enter into contracts, sue others, be sued, and so on, without the investors behind the entity being personally liable. However, a limited partnership has very different tax implications from those what are some ways to make money that apply to a company. A company pays tax in its own right. A limited partnership, on the other hand, does not pay tax in its own right. Rather, the individual partners pay tax on profits, and gain the benefit of any losses (up to the amount of their committed capital – a similar arrangement to a look-through company (LTC)). Why have a limited partnership?

• tax: where investors in a joint venture are on different tax what are some ways to make money rates (for example, an iwi charity forming a property development joint venture with what are some ways to make money a private trust), then a limited partnership allows each investor to pay tax what are some ways to make money on profits at its own rate (zero per cent for the charity; 33 per cent for the private trust), rather than the JV company paying its own tax. Similar issues might apply when a new zealand and australian what are some ways to make money investor are doing business together.

• confidentiality: this is often underrated as an advantage. The name of the limited partnership and the identity of what are some ways to make money the general partner are a matter of public record. The identity of the limited partners must be disclosed to what are some ways to make money the registrar, but is not a matter of public record. With a company, the names of shareholders must be disclosed; with a limited partnership, investors’ names can remain hidden.

• liability as between investors: this is perhaps a less well-known point. In a company, directors owe duties to shareholders and to the company. Shareholders can also owe duties to each other, particularly in a ‘quasi-partnership company’, where the shareholders are a close-knit group with expectations of trust and confidence, where they work in the business together, and (usually) where there are restrictions on share transfers. These duties can be those of utmost good faith (fiduciary duties) – a step above contractual duties. Under the limited partnerships act, partners can expressly provide that they do not owe fiduciary what are some ways to make money duties to each other, thereby limiting their legal risks as between each other.

• time: A company is easy to set up, while a limited partnership is not. A limited partnership is also not well suited to a what are some ways to make money situation where you want a new entity fast and cheap. A detailed limited partnership agreement is compulsory, and registration can take some time. The costs involved in setting up and registering a limited what are some ways to make money partnership are much higher than for a company.

• involvement: conceptually, the limited partnership structure is based around a division between what are some ways to make money management and investment – between the general partner and the limited partners. If all investors want to be actively involved in the what are some ways to make money business, then a limited partnership is not really the ideal structure. It may still be usable, but conceptually the fit is wrong. For this reason, limited partnerships are better suited to hands-off, passive investors than they are to hands-on businesses, such as professional service firms. I don’t think limited partnerships are right for most professional service what are some ways to make money firms, or your average small business where mike and jim both what are some ways to make money want employment, ownership, and control in the business. A standard company is generally better.

Governance and exit strategies are two critical points that often what are some ways to make money go largely unconsidered in limited partnership agreements. As limited partnerships become more common, it is important – essential – that advisers become more sophisticated about them. It is too easy for limited partnership agreements to be what are some ways to make money based on templates unsuited to the parties and their situation.

For example, where there are only two limited partners, exit strategies need to be very different than if there what are some ways to make money are six or 10 limited partners. Do they have roughly the same resources, if A needs to buy B out? Or will B always win a ‘bidding war’ between the two? If B breaches the agreement, what will A do? Should A have the ability to pay out B over what are some ways to make money a period of time, rather than immediately? What if A and B fall out and simply cannot what are some ways to make money agree on a decision requiring a resolution of the limited what are some ways to make money partners? The answers to these kinds of questions need to be what are some ways to make money tailored, and a standard template pre-emption clause won’t do the trick.

It is still early days of course, and it seems there are (so far) many more limited partnership agreements than there are agreements for what are some ways to make money the sale of an interest in a limited partnership. These too require more detailed attention, in terms of sale price, valuation, timing, settlement obligations, and warranties. The negotiation of warranties on departure from a limited partnership what are some ways to make money may well come to vex an increasing number of lawyers.

Increasingly, parties to a limited partnership will be better served by what are some ways to make money customised and tailored arrangements. These should take into account the points raised above, and many others besides. Otherwise, those entering into limited partnership arrangements may get more confusion, and less clarity, than they bargained for – and the 2.0 issues will be ones of concern and loss, rather than opportunity and prosperity.

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