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A limited partnership (LP) is a form of
partnership A partnership is an arrangement where parties, known as business partner A business partner is a commercial entity with which another commercial entity has some form of Business alliance, alliance. This relationship may be a contractual, exclus ...

partnership
similar to a
general partnership A general partnership, the basic form of partnership under common law, is in most countries an association of persons or an unincorporated company with the following major features: *Must be created by agreement, proof of existence and estoppel. ...
except that while a general partnership must have at least two general partners (GPs), a limited partnership must have at least one GP and at least one limited partner. Limited partnerships are distinct from
limited liability partnership A limited liability partnership (LLP) is a partnership in which some or all partners (depending on the jurisdiction) have limited liabilities. It therefore can exhibit elements of partnership A partnership is an arrangement where parties, ...
s, in which all partners have limited liability. The GPs are, in all major respects, in the same legal position as partners in a conventional firm: they have management control, share the right to use partnership property, share the profits of the firm in predefined proportions, and have
joint and several liability Where two or more persons are liable in respect of the same liability, in most common law In law, common law (also known as judicial precedent or judge-made law, or case law) is the body of law created by judges and similar quasi-judicial tribunal ...
for the
debt Debt is an obligation that requires one party, the debtor A debtor or debitor is a legal entity (legal person) that owes a debt Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to ...

debt
s of the partnership. As in a general partnership, the GPs have actual authority, as agents of the firm, to bind the partnership in
contract A contract is a legally binding agreement that defines and governs the rights and duties between or among its parties Image:'Hip, Hip, Hurrah! Artist Festival at Skagen', by Peder Severin Krøyer (1888) Demisted with DXO PhotoLab Clearview ...

contract
s with third parties that are in the ordinary course of the partnership's business. As with a general partnership, "an act of a general partner which is not apparently for carrying on in the ordinary course the limited partnership's activities or activities of the kind carried on by the limited partnership binds the limited partnership only if the act was actually authorized by all the other partners."


Background of limited liability

Like
shareholder A shareholder (in the United States often referred to as stockholder) of a is an or (such as another , a , a or ) that is registered by the corporation as the legal owner of of the of a or . Shareholders may be referred to as members of a ...
s in a
corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal ...

corporation
, limited partners have
limited liability Limited liability is a legal status where a person's financial liability Liability may refer to: Law * Legal liability, in both civil and criminal law ** Public liability, part of the law of tort which focuses on civil wrongs ** Product liabi ...
. This means that the limited partners have no management authority, and (unless they obligate themselves by a separate contract such as a guarantee) are not liable for the debts of the partnership. The limited partnership provides the limited partners a return on their investment (similar to a
dividend A dividend is a distribution of profit Profit may refer to: Business and law * Profit (accounting), the difference between the purchase price and the costs of bringing to market * Profit (economics), normal profit and economic profit * Profit ...

dividend
), the nature and extent of which is usually defined in the partnership agreement. General Partners thus bear more economic risk than do limited partners, and in cases of financial loss, the GPs will be the ones which are personally liable. Limited partners are subject to the same alter-ego piercing theories as corporate shareholders. However, it is more difficult to pierce the limited partnership veil because limited partnerships do not have many formalities to maintain. So long as the partnership and the members do not co-mingle funds, it would be difficult to pierce the veil. In some jurisdictions (for instance in the UK), the limited liability of the limited partners is contingent on their not participating in management. Partnership interests (including the interests of limited partners) are afforded a significant level of protection through the
charging orderA charging order, in English law English law is the common law List of national legal systems, legal system of England and Wales, comprising mainly English criminal law, criminal law and Civil law (common law), civil law, each branch having its o ...
mechanism. The charging order limits the creditor of a debtor-partner or a debtor-member to the debtor's share of distributions, without conferring on the creditor any voting or management rights. When the partnership is being constituted, or the composition of the firm is changing, limited partnerships are generally required to file documents with the relevant
state State may refer to: Arts, entertainment, and media Literature * ''State Magazine'', a monthly magazine published by the U.S. Department of State * The State (newspaper), ''The State'' (newspaper), a daily newspaper in Columbia, South Carolina, Un ...
registration office. Limited partners must explicitly disclose their status when dealing with other parties, so that such parties are on notice that the individual negotiating with them carries limited liability. It is customary that the documentation and electronic materials issued to the public by the firm will carry a clear statement identifying the legal nature of the firm and listing the partners separately as general and limited. Hence, unlike the GPs, the limited partners do not have inherent
agency Agency may refer to: * a governmental or other institution Institutions, according to Samuel P. Huntington, are "stable, valued, recurring patterns of behavior". Institutions can refer to mechanisms which govern the behavior Behavior (Am ...
authority to bind the firm unless they are subsequently ''held out'' as agents (and so create an agency by
estoppel Estoppel is a judicial device in common law legal systems whereby a court A court is any person or institution, often as a government institution, with the authority to Adjudication, adjudicate legal disputes between Party (law), parties and ...
); or acts of ratification by the firm create ostensible authority.


History

The ''societates publicanorum'', which arose in
Rome , established_title = Founded , established_date = 753 BC , founder = King Romulus , image_map = Map of comune of Rome (metropolitan city of Capital Rome, region Lazio, Italy).svg , map_caption = The te ...

Rome
in the third century BC, may have arguably been the earliest form of limited partnership. During the heyday of the
Roman Empire The Roman Empire ( la, Imperium Rōmānum ; grc-gre, Βασιλεία τῶν Ῥωμαίων, Basileía tôn Rhōmaíōn) was the post-Republican Republican can refer to: Political ideology * An advocate of a republic, a type of governme ...

Roman Empire
, they were roughly equivalent to today's
corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal ...

corporation
s. Some had many investors, and interests were publicly tradable. However, they required at least one (and often several) partners with unlimited liability.Malmendier, Ulrike; ''Societas publicanorum: staatliche Wirtschaftsaktivitäten in den Händen privater Unternehmer ''; Böhlau Verlag; Cologne, FRG; 2002 A very similar form of partnership was present in Arabia at the time of the coming of Islam (c. 700CE), and this became codified into Islamic law as
QiradThe qirad (also known as Muqaradah by Hanafi and Hanbali scholars)Sapuan, Noraina Mazuin. "An evolution of Mudarabah contract: a viewpoint from classical and contemporary Islamic scholars." Procedia economics and finance 35, no. 3 (2016): 349-358. wa ...
.


Development in early modern Europe

In medieval
Italy Italy ( it, Italia ), officially the Italian Republic ( it, Repubblica Italiana, links=no ), is a country consisting of Italian Peninsula, a peninsula delimited by the Alps and List of islands of Italy, several islands surrounding it, whose ...

Italy
, a business organization known as the ''
commendaThe commenda was a medieval contract A contract is a legally binding agreement that defines and governs the rights and duties between or among its parties Image:'Hip, Hip, Hurrah! Artist Festival at Skagen', by Peder Severin Krøyer (1888) De ...

commenda
'' appeared in the 10th century that was generally used for financing maritime trade. In a commenda, the traveling trader of the ship had limited liability, and was not held responsible if money was lost as long as the trader had not violated the rules of the contract. In contrast, his investment partners on land had unlimited liability and were exposed to risk. A ''commenda'' was not a common form for a long-term business venture as most long-term businesses were still expected to be secured against the assets of their individual proprietors. As an institution, the commenda is very similar to the qirad but whether the qirad transformed into the commenda, or the two institutions evolved independently cannot be stated with certainty. In the
Mongol Empire The Mongol Empire of the 13th and 14th centuries was the List of largest empires, largest contiguous land empire in history and the second largest empire by landmass, second only to the British Empire. Originating in Mongolia in East Asia, the ...
, the contractual features of a Mongol-''ortoq'' partnership closely resembled that of
qiradThe qirad (also known as Muqaradah by Hanafi and Hanbali scholars)Sapuan, Noraina Mazuin. "An evolution of Mudarabah contract: a viewpoint from classical and contemporary Islamic scholars." Procedia economics and finance 35, no. 3 (2016): 349-358. wa ...
and commenda arrangements, however, Mongol investors were not constrained using uncoined precious metals and tradable goods for partnership investments and executed money-lending. Moreover, Mongol elites formed trade partnerships with merchants from Italian cities, including
Marco Polo Marco Polo (, , ; September 15, 1254January 8, 1324) was a Venetian merchant, explorer, and writer who travelled through Asia along the Silk Road The Silk Road was and is a network of trade routes connecting the Eastern world, East and W ...

Marco Polo
’s family. Colbert's Ordinance (1673) and the
Napoleonic Code The Napoleonic Code (, lit. "Code Napoleon"), officially the Civil Code of the French (; simply referred to as ) is the French French (french: français(e), link=no) may refer to: * Something of, from, or related to France France (), of ...
(1807) reinforced the limited partnership concept in European law. In the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...

United States
, limited partnerships became widely available in the early 19th century, although a number of legal restrictions at the time made them unpopular for business ventures. Britain enacted its first limited partnership statute in 1907.


Regional variations


United States

In the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...

United States
, the limited partnership organization is most common among
film production companies This is a list of Filmmaking, film production and film distribution, distribution companies. A production company may specialize in producing their in-house films or own subsidiary development companies. Major production companies often distribute ...
and real estate investment projects, or in types of businesses that focus on a single or limited-term project. They are also useful in "
labor Labour or labor may refer to: * , the delivery of a baby * , or work ** , physical work ** , a socioeconomic relationship between a worker and an employer Literature * , an American quarterly on the history of the labor movement * ', an academic ...
-
capital Capital most commonly refers to: * Capital letter Letter case (or just case) is the distinction between the letters that are in larger uppercase or capitals (or more formally ''majuscule'') and smaller lowercase (or more formally ''minusc ...
" partnerships, where one or more financial backers prefer to contribute money or resources while the other partner performs the actual work. In such situations, liability is the driving concern behind the choice of limited partnership status. The limited partnership is also attractive to firms wishing to provide shares to many individuals without the additional tax liability of a corporation.
Private equity Private equity (PE) typically refers to investment funds, generally organized as limited partnerships, that buy and restructure companies that are not publicly traded. Private equity is a type of equity and one of the asset classes consisti ...
companies almost exclusively use a combination of general and limited partners for their investment funds. Well-known limited partnerships include
Enterprise Products Enterprise Products Partners L.P. () is an American midstreamThe oil and gas industry is usually divided into three major components: upstream, midstream and downstream (petroleum industry), downstream. The midstream sector involves the transpor ...
and
Blackstone Group The Blackstone Group Inc. is an American alternative investment management company based in New York City New York City (NYC), often simply called New York, is the List of United States cities by population, most populous city in the Uni ...
(both of which are
public companies A public company, publicly traded company, publicly held company, publicly listed company, or public limited company is a company A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whet ...
), and
Bloomberg L.P. Bloomberg L.P. is a privately held financial, software, data, and media company headquartered in Midtown Manhattan Midtown Manhattan is the central portion of the New York City borough New York City New York City (NYC), often simp ...
(a
private company A privately held company or private company is a company which does not offer or trade its company stock In finance, stock (also capital stock) consists of all of the shares In financial markets A financial market is a market in whi ...
). Before 2001, the limited liability enjoyed by limited partners was contingent upon their refraining from taking any active role in the management of the firm. However, Section 303 of the Revised Uniform Limited Partnership Act (if adopted by a state legislature) eliminates the so-called "control rule" with respect to personal liability for entity obligations and brings limited partners into parity with LLC members, LLP partners and corporate shareholders. The 2001 amendments to the
Uniform Limited Partnership Act::''(ULPA is also an acronym for ultra-low penetration air (ULPA) filters.)'' The Uniform Limited Partnership Act (ULPA), which includes its 1976 revision called the Revised Uniform Limited Partnership Act (RULPA), is a uniform act In the United ...
(to the extent the amendments are adopted by state legislature) also permitted limited partnerships to become
limited liability limited partnership The limited liability limited partnership (LLLP) is a relatively new modification of the limited partnership. The LLLP form of business entity In law, a legal person is any person A person (plural people or persons) is a being that has cert ...
s in states that adopt the change. Under this form, debts of a limited liability limited partnership are solely the responsibility of the partnership, thereby removing general-partner liability for partnership obligations. This change was made in response to the common practice of naming a limited-liability entity as a 1% general partner that controlled the limited partnership and organizing the managers as limited partners. This practice granted a general partner de facto limited liability under the partnership structure.


United Kingdom

In the
United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain,Usage is mixed. The Guardian' and Telegraph' use Britain as a synonym for the United Kingdom. Some prefer to use Britain as shorth ...

United Kingdom
, limited partnerships are governed by the Limited Partnerships Act 1907 and, on matters on which that Act is silent, also by the
Partnership Act 1890 The Partnership Act 1890 (c. 39) is an Act of the Parliament of the United Kingdom The Parliament of the United Kingdom is the Parliamentary sovereignty in the United Kingdom, supreme Legislature, legislative body of the United Kingdom, the ...
. The UK Department for Business, Enterprise and Regulatory Reform (now the Department for Business, Energy, and Industrial Strategy (BEIS)) consulted in 2008 on proposals to modify and merge the two Acts, but the proposals did not go ahead.
Scots law Scots law () is the legal system The contemporary national legal systems are generally based on one of four basic systems A system is a group of interacting or interrelated elements that act according to a set of rules to form a unified ...
on partnerships (including limited partnerships) is distinct from
English law English law is the common law List of national legal systems, legal system of England and Wales, comprising mainly English criminal law, criminal law and Civil law (common law), civil law, each branch having its own Courts of England and Wales, ...
. Under Scots law, partnerships are legal persons distinct from the partners. However, lawsuits may still be filed against the partners by name, the general partners are still exposed to 'pass-through' liability, and partners are still jointly and severally liable (although in the case of limited partners, only to the extent of their capital contribution). There has been discussion over whether limited partnerships operating under English law should be made separate legal entities as under Scots law, and in the same way as limited liability partnerships are. The Law Commission report on partnership la
LC283
suggested that creation of separate legal personality should be left as an option for the partners to decide upon when a partnership is formed. There were concerns that automatically making partnerships separate legal entities would restrict their ability to trade in some European countries and also expose them to different tax regimes than expected.


Hong Kong

Hong Kong Hong Kong (; , ), officially the Hong Kong Special Administrative Region of the People's Republic of China (HKSAR), is a List of cities in China, city and Special administrative regions of China, special administrative region of China on the ...

Hong Kong
offers two forms of limited partnerships, namely limited partnerships governed by th
Limited Partnership Ordinance
and limited partnership funds, known as "LPFs", governed by th
Securities and Futures Ordinance
Neither limited partnerships nor LPFs are separate and distinct legal persons. Instead, they are simply partnerships of persons, some of whom enjoy limited liability as a result of compliance with statutory requirements. Like many other jurisdictions, the partners who enjoy such limited liability are known as limited partners and their limited liability is contingent upon them not taking an active role in the management of the partnership. LPFs were introduced in 2020 and are intended to provide a domestic Hong Kong vehicle for private equity funds.


Japan

Japanese law The law of Japan refers to legal system in Japan, which is primarily based on legal codes and statutes, with precedents also playing an important role. Japan has a civil law legal system with six legal codes, which were greatly influenced by Germ ...
has historically provided for two business forms similar to limited partnerships: * '' Goshi gaisha'', a form of close
corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal ...

corporation
('' mochibun kaisha'') with unlimited liability for certain shareholders * ''
Tokumei kumiai, literally "anonymous partnerships," are a Japan , image_flag = Flag of Japan.svg , alt_flag = Centered deep red circle on a white rectangle , image_coat = Imperial Seal of Japan.svg , a ...
'' (lit. "anonymous partnerships"), a form of partnership in which non-operating partners have limited liability so long as they remain anonymous In 1999, the
Diet of Japan The is Japan , image_flag = Flag of Japan.svg , alt_flag = Centered deep red circle on a white rectangle , image_coat = Imperial Seal of Japan.svg , alt_coat = Go ...
passed legislation enabling the formation of . These are very similar to Anglo-American limited partnerships, in that they adopt most provisions of
general partnership A general partnership, the basic form of partnership under common law, is in most countries an association of persons or an unincorporated company with the following major features: *Must be created by agreement, proof of existence and estoppel. ...
law but provide for limited liability for certain partners. Profits of an investment limited partnership pass through to all partners proportional to their investment share. For tax purposes, profits and losses will only pass through to the general partner(s) while the partnership has
negative equity Negative equity is a deficit of owner's equity, occurring when the value of an asset used to secure a loan is less than the outstanding balance on the loan. In the United States, assets (particularly real estate Real estate is property consis ...
(i.e. liabilities exceeding assets); however, profits and losses while the partnership has positive equity are shared equally.


New Zealand

In
New Zealand New Zealand ( mi, Aotearoa ''Aotearoa'' (; commonly pronounced by English English usually refers to: * English language English is a West Germanic languages, West Germanic language first spoken in History of Anglo-Saxon Engl ...

New Zealand
, Limited Partnerships are a form of partnership involving General Partners, (who are liable for all the debts and liabilities of the partnership) and Limited Partners (who are liable to the extent of their capital contribution to the partnership). The Limited Partnerships Act 2008 replaces Special Partnerships that exist under Part 2 of the Partnership Act 1908. Special partnerships are considered obsolete as they do not provide the appropriate structure preferred by foreign venture capital investors. Features of Limited Partnerships include: * a list of activities that the limited partners can be involved in while not participating in the management of the Limited Partnership (safe harbour activities) * an indefinite lifespan if desired * separate legal personality * tax treatment for Limited Partnerships. The registers of Limited Partnerships and Overseas Limited Partnerships are administered by the New Zealand
Companies Office The New Zealand Companies Office (a service of the New Zealand Ministry of Business, Innovation and Employment) is a government agency that provides Business license, business registry services in relation to Corporation, corporate entities, persona ...
. Registration, maintenance and annual return filing for Limited Partnerships and Overseas Limited Partnerships are conducted through manual forms.


Germany

Kommanditgesellschaft auf Aktien – abbreviated KGaA – is a
German German(s) may refer to: Common uses * of or related to Germany * Germans, Germanic ethnic group, citizens of Germany or people of German ancestry * For citizens of Germany, see also German nationality law * German language The German la ...

German
corporate A corporation is an organization—usually a group of people or a company A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whether Natural person, natural, Legal person, legal ...

corporate
designation standing for 'partnership limited by shares', a form of corporate organization roughly equivalent to a
master limited partnership In the United States The United States of America (USA), commonly known as the United States (U.S. or US), or America, is a country Contiguous United States, primarily located in North America. It consists of 50 U.S. state, states, a Washin ...
. A
Kommanditgesellschaft A (abbreviated "KG", ; from + ) is the German name for a limited partnership A limited partnership (LP) is a form of partnership A partnership is an arrangement where parties, known as business partners, agree to cooperate to advance their ...
auf Aktien has two types of participators. It has at least one partner with unlimited liability (Komplementär). It is in that sense a private company. Komplementärs are
natural person In jurisprudence Jurisprudence, or legal theory, is the theoretical study of the propriety of law Law is a system A system is a group of Interaction, interacting or interrelated elements that act according to a set of rules to ...
s or
legal person In law Law is a system A system is a group of Interaction, interacting or interrelated elements that act according to a set of rules to form a unified whole. A system, surrounded and influenced by its environment, is described by ...
s. If the Komplementär is a corporation with limited liability then the type of the company has to be named as '' UG (haftungsbeschränkt) & Co. KGaA'', '' GmbH & Co. KGaA'', '' AG & Co. KGaA'' or '' SE & Co. KGaA''. Under consideration of the aspects of European freedom of establishment it is also possible that corporations established under foreign law can become Komplementärs of a KGaA forming companies like ''Limited & Co. KGaA''. The investment of the
partners Partner, Partners, The Partner, or, The Partners may refer to: Books *The Partner (Grisham novel), ''The Partner'' (Grisham novel), by John Grisham, 1997 *The Partner (Jenaro Prieto novel), ''The Partner'' (Jenaro Prieto novel), 1928 *The Partners ...

partners
with
limited liability Limited liability is a legal status where a person's financial liability Liability may refer to: Law * Legal liability, in both civil and criminal law ** Public liability, part of the law of tort which focuses on civil wrongs ** Product liabi ...
(Kommanditisten) is the stock of the company (Grundkapital) and divided into shares. A KGaA is in that aspect comparable with a German
Aktiengesellschaft (; abbreviated AG, ) is a German word for a corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), state to act as a single entity (a legal entity recognized by private ...
. The investment of all partners is the corporate's total capital (Gesamtkapital). The KGaA is a traditional type of very large
family business A family business is a commercial organization Business is the activity of making one's living or making money by producing or buying and selling Product (business), products (such as goods and services). Simply put, it is "any activity or en ...

family business
es (that are partly publicly traded) in Germany; the consumer products giant
Henkel Henkel AG & Co. KGaA is a German chemical and consumer goods company headquartered in Düsseldorf Düsseldorf (, , ; often in English sources; Low Franconian and Ripuarian language, Ripuarian: ''Düsseldörp'' ; archaic nl, Dusseldorp) is ...

Henkel
, pharmaceutical company Merck and media conglomerate
Bertelsmann Bertelsmann is a German private Private or privates may refer to: Music * "In Private "In Private" was the third single in a row to be a charting success for United Kingdom, British singer Dusty Springfield, after an absence of nearly two ...
are prominent examples. In case of Merck, besides the owning family Merck also the members of the executive board are fully and privately liable for the company (including a period after withdrawal). Also the German football club
Borussia Dortmund Ballspielverein Borussia 09 e. V. Dortmund, commonly known as Borussia Dortmund , BVB, or simply Dortmund, is a German professional sports club based in Dortmund, North Rhine-Westphalia. It is best known for its men's Football team, professional ...

Borussia Dortmund
uses this corporate organization (as ''Borussia Dortmund GmbH & Co KGaA'') for its professional football team as part of its compliance with the " 50+1 rule".


Denmark

A kommanditselskab (abbreviated K/S) is the Danish equivalent of the limited partnership. The owners are divided into general partners (komplementarer in Danish) and limited partners (kommanditister in Danish). Often the only general partner of a K/S is an Anpartsselskab with the least possible capital, thus reducing the liability of the K/S to the capital of the Anpartsselskab.


See also

*
Master limited partnership In the United States The United States of America (USA), commonly known as the United States (U.S. or US), or America, is a country Contiguous United States, primarily located in North America. It consists of 50 U.S. state, states, a Washin ...


References

{{DEFAULTSORT:Limited Partnership Business law Types of business entity
Legal entitiesThis category contains articles related to juristic or natural person In jurisprudence Jurisprudence, or legal theory, is the theoretical study of law. Scholars of jurisprudence seek to explain the nature of law in its most general form and ...
Partnerships