A limited partnership consists of two distinct kinds of partner. There must be at least one general partner, who has unlimited liability for the obligations and debts of the business. Meanwhile, limited partnership law decrees that limited partners, on the other hand, are only liable for the amount they invest into the business.
General partners are also wholly responsible for managing the business, with the role of limited partners restricted to investing in the business; essentially they are a silent partner.
This creates a good opportunity for businesses to attract substantial investment from those who do not wish to take on any day-to-day responsibility for the running of the company.
How to start a limited partnership
Properly registered limited partnerships are governed by the Limited Partnerships Act 1907. The business must submit an LP5 form to Companies House that details its name, address, and the nature of the organisation. Limited partnership law requires that each partner must be mentioned by name, along with a clear indication of whether they are a general or limited partner.
Failure to do this could see the organisation default to general partnership status, which could have serious implications as it will mean all partners will be liable for all company debts, regardless of their initial status.
What can’t a limited partner do?
Due to their lesser role within the company, there are some actions that limited partners are prevented from doing.
As they are not permitted to act in a managerial capacity, they have no powers to commit the company to any deal or course of action, while any vote on the running of the business will only be conducted by general partners, including the introduction of additional general partners.
In the rare instances where they might temporarily step up to a manager role, under limited partnership law they will be liable for any debts or obligations taken on by the company during that period of time.
A limited partner cannot dissolve the partnership, either by giving notice or in the case of bankruptcy or death but in rare cases, can apply to the court to dissolve the limited partnership. If the general partners choose to dissolve the partnership, they are responsible for winding up its affairs unless a court indicates otherwise.
To find out more about limited partnership law, including advice on setting up a limited partnership, you can contact Ralli Solicitors on 0161 832 6131.