Partnerships

Partnerships come in two forms.

The Limited Partnerships Act 2008 came into force on 2 May 2008. The Act introduced a new legal entity, the limited partnership - a hybrid structure which draws from principles of both company and partnership law. The Act authorises the formation, by registration, of limited partnerships in New Zealand and governs their operation. A mechanism for registration of overseas limited partnerships carrying on business in New Zealand is also provided.

Partnerships are usually formed when two or more people, perhaps with different or complementary skills and resources, get together to run a business or to share office space and overheads (the partnership structure is popular with accountants and other professionals).

As a partner, you are liable both separately and jointly with the other partner(s) for the liabilities of the partnership. You split the profits according to the partnership agreement (for example, two partners agree to split the profit 50%). You are taxed at individual tax rates on your income from the partnership. The disadvantage is that you are liable not only for your own debts, but also for those partnership debts incurred by your partner(s).

Like a company, a limited partnership has full capacity to carry on or undertake any business or activity, do any act or enter into any transaction. The Limited Partnerships Act 2008 confers full rights, powers and privileges on limited partnerships for this purpose. The capacity and powers conferred on limited partnerships by the Limited Partnerships Act 2008 can be restricted in the limited partnership agreement. However, unlike a company's constitution, a limited partnership agreement is not a public document. The effect of this is that third parties who deal with a limited partnership will not necessarily have notice of the contents of that agreement and any restrictions in it. Note, however, that the Limited Partnerships Act 2008 does not provide any protection for a person who deals with a limited partner, regardless of the extent to which the limited partnership has held the limited partner out to be a person of authority. This is consistent with the limited partner having no authority to act as the agent of the limited partnership, general partner or other limited partners.

If you intend doing business with a limited partnership, or establishing one, talk to Rennie Cox about the advantages and disadvantages of this form of partnership vis-a-vis partnership, company and sole trader options.