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NZ Limited Partnership - now available
The 2nd May 2008 saw the operational start of The Limited Partnerships
Act 2008 enabling registration of Limited Partnerships and Overseas
Limited Partnerships. The main objective of the introduction of
the Limited Partnerships is to facilitate sustainable growth in
New Zealand's venture capital and private equity industries. These
will also provide tax free results for overseas based Limited Partners
who have only offshore sourced income.
Limited Partnerships are a 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). These Limited Partnerships will
replace Special Partnerships that exist under Part 2 of the Partnership
Act 1908. Special partnerships are now considered obsolete as they
do not provide the appropriate structure preferred by foreign venture
capital investors.
The introduction of an internationally recognised Limited Partnerships
(equivalent to other offshore Limited Partnerships) will remove
existing barriers to foreign capital investment which provides a
valuable source of funding for new companies and those requiring
early stage expansion capital. The Act will enable New Zealand businesses
to compete internationally on a level playing field for venture
capital and expansion capital funds.
The main features of Limited Partnerships include:
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separate legal personality
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an indefinite lifespan if desired
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a list of activities that the limited partners can be engaged
in while not participating in the management of the Limited
Partnership (safe harbour activities)
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specially designed tax treatment
What is the difference between a Limited Partnership and an
Overseas Limited Partnership?
A Limited Partnership is formed by registration in New Zealand,
whereas an Overseas Limited Partnership is a partnership that has
been formed in a country other than New Zealand, but because it
is engaged in business activities in New Zealand it must register
as an Overseas Limited Partnership.
Overseas Limited Partnerships carrying on business in New Zealand,
must register on the register of Overseas Limited Partnerships as
a form of creditor protection. This ensures that a record of these
partnerships can be accessed by the general public.
How is the Limited Partnership Taxed?
This structure is similar to Limited Partnerships found in many
other countries. The New Zealand Limited Partnership is a fiscally
transparent entity and will suffer no tax in New Zealand on the
basis it earns no New Zealand sourced income, assuming that the
limited partners in the Limited Partnership are all non-New Zealand
residents. It is possible for a Limited Partnership of this nature
to have only one limited partner (but perhaps more) and one general
partner. There is no requirement for New Zealand resident partners.
One does need to take care about the source of income rules, and
therefore in many cases it is appropriate to use a non-New Zealand
company as the general partner. This is because the general partner
is the party responsible for managing the business/investment activities
of the limited partnership, and therefore if the general partner
is a non-New Zealand resident entity, there is great comfort that
the partnership itself is not earning New Zealand sourced income.
This may be achieved by using a New Zealand company as General Partner,
if its mind and management is outside New Zealand.
The Limited Partnership makes it possible for foreign investors
to have their gains and losses recognised for tax purposes in their
own countries.
What is a safe harbour mechanism and what activities are Limited
Partners allowed to engage in?
A Limited Partner is prevented from being involved in the day
to day management of the Limited Partnership. To enable Limited
Partners to become involved in the key decision making activities
of a Limited Partnership, the Limited Partnerships Act includes
a safe harbour mechanism to ensure Limited Partners maintain their
limited liability.
Safe harbour activities include but are not limited to:
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Being involved in the decision about the variation or replacement
of the partnership agreement
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Being involved in the decision about whether to approve or
veto an investment proposal (under certain conditions set out
in the Act)
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Being involved in the decision about whether the Limited Partnership
should be terminated or not
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Being involved in the decision about whether the general nature
of the Limited Partnership should change.
The Act including the Schedule contains a complete list of safe
harbour activities.
What is a partnership agreement?
A partnership agreement is between partners that establishes a
Limited Partnership and governs the terms and conditions of the
partnership relationship. On registration the General Partner, (or
their agent), must certify that the proposed partners of the Limited
Partnership have entered into a partnership agreement which complies
with the Limited Partnership Act 2008 before it can be registered.
How is my privacy as a limited partner protected?
The Limited Partnerships regime recognises that limited partners
may not wish to publicly disclose their interest in a Limited Partnership.
Therefore the Registrar must treat limited partner information as
confidential and details relating to limited partners will not be
available for viewing by the public.
For further information please contact us
here
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