Limited Partnerships are an option for running your business

A recently qualified chef was keen to open her own restaurant.  She, however, did not have enough financial backing to start the business.  Her friend had significant experience in the hospitality industry and owned various bars in town.  She approached him to see if he wanted to go into business together.

Her friend didn’t want to be involved in the day-to-day running of the business, but was happy to contribute some capital to start the business on the basis that he receive a share of the profits.

The chef had assumed that she would need to set up a company, however upon taking advice from her lawyer and accountant, realised that a limited partnership was a good option for them. She had not heard of this option previously.

Limited partnerships operate in a similar way to a standard partnership, where partners each contribute towards the initial capital of the business, and share the profits and losses based on their contribution to the capital.  However, unlike standard partnerships, they are registered entities (through the Companies Office) and are a separate legal entity on their own.  They are a well-recognised business structure overseas.

Limited partnerships have a ‘general partner’, who is responsible for the day-to-day running of the business and who bears all of the liability for the business and a ‘limited partner’ who contributes capital but bears no liability or responsibility for the management of the business (other than liability in relation to the initial capital they put in).  The partners can be individuals or other entities, such as companies.  There can be more than one of each type of partner.

The chef’s lawyer advised her that she would need to put in place a partnership agreement whereby she and her friend agree on the terms of the partnership.  The agreement would not need to be registered with the Companies Office, unlike a company where the constitution is a publically registered document.  She appreciated that this would give the business arrangements a bit more privacy.

Her accountant also advised her that there were some tax advantages of using a limited partnership, in particular that it is not taxed as a separate entity; the partners are instead taxed personally on any profits.

There are some constraints around limited partnerships including residency requirements and rules around who can be a partner, so for a whole raft of reasons it pays to take legal advice if you are considering setting up a limited partnership.