Corporate structure
Limited Partnership
General partner control with passive limited partners
In short
An LP has at least one general partner with unlimited liability and management control, and limited partners whose liability is capped at their commitment provided they stay out of management. It is the classic fund and co-investment vehicle.
- Liability
- Unlimited for the general partner, limited for limited partners
- Governing law
- DIFC Partnership Law
- Minimum owners
- 1 general partner and 1 limited partner
- Minimum capital
- No statutory minimum
- Audit
- Depends on the structure and whether it is a registered fund
Best suited to
- Private equity, venture and real estate funds
- Co-investment vehicles
- Carried interest structures
Watch out for
- Limited partners lose their protection if they participate in management
- The general partner is usually a separate limited company to contain the unlimited exposure
The management participation trap
A limited partner who takes part in managing the partnership can lose limited liability status. Fund documents include safe harbour lists setting out what a limited partner can do without crossing the line, typically covering advisory committee participation, consent rights over specified matters and information rights.
Investors who want operational involvement should hold through a co-investment vehicle rather than stretching the safe harbour.
Questions
Why is the general partner usually a company?
Because the general partner carries unlimited liability. Interposing a limited company as the GP contains that exposure within a vehicle that holds nothing else.
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