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What Is A Limited Partnership?

4 min read

What Is A Limited Partnership?

In a world where globalism is increasingly prevalent, finding ways to protect yourself and the fruits of your labour becomes crucial. Operating solely as a freelancer or investor and placing everything under your name can make your financial activities easily accessible and trackable.

Thankfully, certain business structures such as trusts and foundations serve as effective tools for wealth preservation, enabling affluent individuals to safeguard and enhance their assets over time. Gaining knowledge about wealth creation, preservation, and multiplication is crucial for individuals seeking to safeguard and enhance their financial assets. Thus, you must explore alternative methods to position yourself towards prosperity and freedom rather than vulnerability and excessive control by technocratic powers.

In this article, we’re looking at a limited partnership, how you can use it to thrive even in times of uncertainty, and its main features. If you already have or will have business partners, this business structure can be the right tool to mitigate risks, scale your business and protect your hard-earned assets, among other benefits.

 

Within the jurisdiction of Malta, by forming a limited partnership, you may obtain the knowledge to safeguard and enhance their financial assets

Within the jurisdiction of Malta, by forming a limited partnership, you may obtain the knowledge to safeguard and enhance their financial assets

UNDERSTANDING LIMITED PARTNERSHIPS

 

DEFINITIONS OF A LIMITED PARTNERSHIP

A limited partnership is a legal entity that allows two or more partners to come together to manage a business, with at least one general partner and one or more limited partners. Another definition could be a partnership formed by two or more persons under the law of a state and having one or more general partners and one or more limited partners.

On the one hand, the general partner manages the partnership's day-to-day operations and bears unlimited personal liability for the debts, lawsuits and other sorts of problems that may arise. On the other hand, limited partners simply invest in the business but have limited liability, so their personal assets are protected.  

At first, this type of business structure might look inconvenient because if an individual serves as the general partner, their personal assets could be in danger. Still, some measures can be taken to help minimize this risk. For example, a classic strategy is using an LLC as the general partner.

 

Abbey De Neumunster is Luxembourgs postcard

Abbey De Neumunster is Luxembourg's postcard

KEY FEATURES OF A LIMITED PARTNERSHIP

Here are the main features of a limited partnership:

  • General partner: the general partners manage and control the limited partnership. They’re responsible for making discussions and overseeing day-to-day operations. The general partner(s) also bear(s) personal liability for the debts and obligations of the partnership, making them personally accountable for any legal claims or financial obligations that may arise;

  • Limited partner: limited partners contribute capital to the limited partnership but have no say in terms of management. However, they enjoy limited liability, which keeps their personal assets protected from the partnership's debts and obligations. A limited partner often provides financial resources without actively participating in its operations, making him a mere passive investor;

  • Profit distribution: profit and losses generated by the limited partnership are distributed based on their ownership interest or according to the terms of the partnership agreement. Upon the agreed conditions and in proportion to their capital contribution, each partner receives a share of the partnership’s profits;

  • Flexibility: limited partnerships provide governance, decision-making, and profit distribution flexibility. Partners can arrange agreements to cater to each member’s needs and objectives. This flexibility makes it easy to customize the partnership, especially considering the partners' goals and the legal requirements of the jurisdiction under which the limited partnership is constituted;

  • Capital contribution: partners in a limited partnership contribute funds or assets to the partnership, which determines their ownership interests. Each partner’s share of profits and losses, as well as their decision-making authority and voting rights, are determined by the amount of capital they provide.

These main features of a limited partnership define the roles, responsibilities and rights of all the parties and create a clear framework for doing business that balances management control and liability protection.

 

You must wisely choose a jurisdiction aligned with your interests and Singapore could be a good fit for you

You must wisely choose a jurisdiction aligned with your interests and Singapore could be a good fit for you

UTILIZING LIMITED PARTNERSHIPS

 

SETTING UP A LIMITED PARTNERSHIP

Setting up a limited partnership is a process that may differ from jurisdiction to jurisdiction, but here’s a general outline:

  • Selecting a jurisdiction: especially as an expat, you must wisely choose a jurisdiction aligned with your interests that offers favourable laws and regulations for limited partnerships. Compare different jurisdictions to find the option that suits you best;

  • Drafting a partnership agreement: You must write a comprehensive partnership agreement that defines the rights, responsibilities, profit distribution mechanisms, exit strategies, and decision-making processes for all partners. This agreement is the foundation of the partnership that fosters understanding among partners;

  • Registering the partnership: Once you have taken steps 1 and 2, it's time to follow the legal requirements to register the limited partnership. This often involves filling out the necessary documents and paying fees. By completing the registration process, your limited partnership is recognized as a legal entity that operates in compliance with local regulations.

SEEKING PROFESSIONAL GUIDANCE

Knowing all the legal procedures and terminology is a hassle unless you’re an expert on the subject. If you’re not a well-versed tax advisor or tax lawyer, you must seek a seasoned professional to ensure you stay compliant and legally reach your goals.  

  • Engaging expert advisors: seek the expertise of experienced legal, tax and financial professionals specializing in international business and expat matters. These professionals provide top-tier guidance through the process, helping you comply with local laws and regulations and make informed decisions;

  • Due diligence: to avoid potential pitfalls, conducting profound research and due diligence will ensure you comply with all local tax and legal regulations. The expert knowledge of certified professionals will help you understand the specific rules and regulations of the chosen jurisdiction and any international tax considerations.

 

Malta is an amazing place to set up a Limited Partnership

Malta is an amazing place to set up a Limited Partnership

ONGOING MANAGEMENT AND COMPLIANCE

  • Regular communication: since you’re operating with other partners, maintaining open and transparent communication is vital. By fostering a cohesive and efficient operation, all parties are informed about the important decision-making processes;

  • Compliance with local laws: staying current on any legal and regulatory changes in the jurisdiction is crucial. Tax regulations, reporting requirements and any other obligations imposed by local authorities may change overnight, so it’s a good rule of thumb to hire an expert who can deal with these endless changes and ensure ongoing compliance;

  • Financial reporting: timely and accurate financial reporting is vital for maintaining compliance and transparency. Therefore, preparing financial statements and tax filings as the jurisdiction requires is necessary.

 

JURISDICTIONS OFFERING LIMITED PARTNERSHIPS

Here’s a list of some jurisdictions that offer Limited Partnerships:

  • Bermuda;
  • Hong Kong;
  • Luxembourg;
  • Cayman Islands;
  • Singapore;
  • Malta;
  • USA;
  • UK.

 

Ongoing management and compliance are crucial for the success of a limited partnership in Luxembourg

Ongoing management and compliance are crucial for the success of a limited partnership in Luxembourg

CONCLUSION

In conclusion, a Limited Partnership can be a valuable vehicle for doing business. Understanding and utilizing a Limited Partnership can be an excellent tool for those looking to protect their assets, reduce risks, and navigate the complex world of international business.

By separating personal and business assets, you can safeguard your wealth and investments while living abroad. The flexibility of limited partnerships allows for customized governance, decision-making, and profit distribution, enabling partners to align their goals and objectives.

Setting up a limited partnership involves selecting the proper jurisdiction, drafting a comprehensive partnership agreement, and ensuring compliance with local regulations through professional guidance. Ongoing management and compliance -  including regular communication, financial reporting, and staying up-to-date with local law -  are crucial for the success of a limited partnership.

With numerous jurisdictions offering limited partnerships, you can choose the most favourable jurisdiction that suits your needs. By implementing these strategies and seeking expert advice, you can leverage the benefits of a limited partnership to secure your financial future and thrive in the global business landscape.

 

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WORK WITH ME

I help my clients to move offshore for freedom, privacy and autonomy by focusing on the immigration, legal, and tax issues that you will face when becoming an expat. If you would like to work one-on-one with me on getting out of your home country (or setting up a Plan-B location), then read this important letter and fill in an application form to become a Private Client. My fees are not cheap; however, I can assure you that when you work with a professional firm like ours, the results will be worth it.

 

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Mikkel Thorup

Written by Mikkel Thorup

Mikkel Thorup is the world’s most sought-after expat consultant. He focuses on helping high-net-worth private clients to legally mitigate tax liabilities, obtain a second residency and citizenship, and assemble a portfolio of foreign investments including international real estate, timber plantations, agricultural land and other hard-money tangible assets. Mikkel is the Founder and CEO at Expat Money®, a private consulting firm started in 2017. He hosts the popular weekly podcast, the Expat Money Show, and wrote the definitive #1-Best Selling book Expat Secrets - How To Pay Zero Taxes, Live Overseas And Make Giant Piles Of Money, and his second book: Expats Guide On Moving To Mexico.

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