A Limited Partnership (LP) consists of:
- one or more persons called general partners, who are liable for all debts and obligations of the firm
- one or more persons called limited partners, who contribute a sum or sums of money as capital, or property valued at a stated amount. Generally, limited partners are not liable for the debts and obligations of the firm beyond the amount contributed.
Limited partners may not:
- draw out or receive back any part of their contribution to the partnership during its lifetime (this does not apply to authorised limited partnerships)
- take part in the management of the business
- have power to bind the firm
If they do, they become liable for all the debts and obligations of the firm up to the amount drawn out, received back or incurred, as the case may be, while taking part in the management of the company. Therefore, only “general” partners should be allocated to management activities in the LP.
Generally speaking, an individual or a legal body such as a company may be a partner in a limited partnership, either as a general or as a limited partner. A person cannot be both a general and a limited partner at the same time. A LP must be registered under the Limited Partnership Act 1907. Until then all partners will be equally responsible for any debts and obligations incurred.
For UK tax purposes partnerships, including LPs, are “tax transparent”. Tax is levied on the “partners” based on their residency. Therefore, if a LP has non-resident partners and there are no assets or source of income in the UK, then there should be no tax liability at all in the UK. Additionally, provided a LP is correctly structured in terms of constituting its partners there is no obligation to file accounts of the LP at the UK public registry. This makes the LP a very useful alternative to an offshore company for non-UK resident beneficial owners.
If however it is necessary for the LP to sign contracts and to have a VAT registration then the “Scottish Limited Partnership” (SLP) provides the perfect solution. Please read the article below regarding the characteristics of SLPs.
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