Limited Partnerships... a 'win-win' option for iwi joint business ventures?

An iwi had set up a company to run its commercial activities.  The iwi wanted to commercialise production of pharmaceuticals sourced from the Manuka trees on its land, but did not have sufficient Manuka to do so.  They decided to approach other nearby Maori land owners about entering into a joint venture. 

The other Maori land owners were very keen on the proposed venture, but didn’t want to be involved in the day-to-day running of it.  They were willing to contribute Manuka-covered land and capital on the basis that they receive a share of the profits.

The iwi wanted to keep control of the management of the venture itself, while at the same time ensuring that iwi Maori land owners would benefit directly from the initiative.  The iwi also wanted to ensure that iwi members benefited through the upskilling and employment opportunities which would be provided.

After receiving advice the iwi decided that a limited partnership could be a good option for them.

What is a Limited Partnership?

A limited partnership is a legal entity which is registered with the Companies Office. The features of a limited partnership are:

1. It has a ‘general partner’, who is responsible for the day-to-day running of the venture and who bears all of the liability for the venture.
2. It also has a ‘limited partner’ who contributes capital but bears no liability or responsibility for the management of the venture (other than liability in relation to the initial capital they put in). 
3. Partners each contribute towards the initial capital of the venture, and share the profits and losses based on their contribution to the capital. 
4. The partners can be individuals or other entities, such as companies or ‘normal’ partnerships.  There can be more than one of each type of partner.
5. The partnership agreement does not need to be registered with the Companies Office (unlike a constitution of a company) and therefore keeps an element of privacy for the parties.
6. There can be some tax advantages, in particular that a limited partnership is not taxed as a separate entity; the partners are instead taxed personally on any profits.
7. Limited partnerships are a well-recognised business structure overseas.

Why a Limited Partnership Worked for the Iwi…

Using a limited partnership structure meant that the iwi’s company could be the ‘general partner’, and therefore be responsible for the day-to-day running of the venture.  It also meant that the company would bear all of the liability for the venture.

The other Maori land owners formed a private partnership amongst themselves, and that partnership became the ‘limited partner’ of the limited partnership.  This meant they did not have any liability or responsibility for the management of the venture.

This created a win-win situation for the iwi and a way to ensure that they were able to assist iwi Maori land owners with the development and utilisation of Maori land within their rohe. 

A limited partnership structure is a viable option for many types of business arrangements that Maori organisations enter into, including farming and food production.  There are some constraints around limited partnerships though, including rules around what types of entity can be a partner so it pays to take specialist advice if you are considering setting up a limited partnership.