Limited Partnership (LP): An Overview
A limited partnership (LP) is a type of partnership company with two types of partners: general and limited.
General Partners
These partners manage the business and are personally liable for the partnership’s debts and obligations. They are fully responsible for the business’s operations and management.
Limited Partners
These partners contribute capital to the business but have limited liability. They are not involved in the day-to-day operations and management of the partnership. Their liability is limited to the extent of their investment in the partnership.
Limited Partnerships, unlike limited liability companies (LLCs), don’t have a separate legal identity. This means that partners are jointly responsible for any losses or debts.
Requirements for Starting a Limited Partnership in Hong Kong
Establishing a Limited Partnership Fund (LPF) in Hong Kong requires the following:
- At least one general partner: The LPF must have at least one general partner responsible for managing the fund’s operations and assuming unlimited liability.
- At least one partner: Additionally, at least one limited partner must contribute capital to the fund. Limited partners enjoy liability limited to their investment amount.
- Appointing an Investment Manager: It is necessary to appoint an Investment Manager who oversees the fund’s investment activities and ensures compliance with regulations.
- Appointing a Responsible Person: A Responsible Person must also be appointed to oversee the LPF’s operations and ensure regulatory compliance.
The LPF regime in Hong Kong is regulated by a registration scheme administered by the Companies Registry, ensuring transparency and compliance with legal requirements.
The Tax Factor
An important reason to go for a limited partnership is the taxes. In corporations, the profit will be taxed on both corporate and personal levels, while in a limited partnership, you’ll only be paying personal taxes, as the taxes aren’t separated.
Conclusion
A limited partnership is a business entity where some partners don’t make as many investments as other partners, so they have limited decision-making rights in the company. Still, it’s more flexible than general partnership, and can be beneficial for those that want a good business model without having to go through the hassle of registering or running a corporate.
