- There are generally 5 types of business structures you can choose from if you’re starting a new business for profit:
- Sole-proprietorship
- General Partnership
- Limited Partnership (LP)
- Limited Liability Partnership (LLP)
- Limited Liability Company (LLC)
- To decide which business structure is most suitable for you, you will need to consider the following factors: –
- How much capital you are prepared to invest?
- How many owners there will be in the business?
- What liabilities and responsibilities you are prepared to assume?
- What risks you are prepared to take?
- Whether a company of that structure will be easy to close?
- Some of the main features of a Limited Partnership include the following: –
- Limited Partnership (LP):
- A LP comprises at least 2 partners of which 1 partner must be the general partner and 1 partner must be the limited partner.
- A general partner is liable for all the LP’s debts. He also has control over the management of the entity.
- A limited partner is only liable for the LP’s debts up to the amount of his own respective individual contributions to the business which would have been fixed when the entity was first formed.
- A partners can be an individual or a foreign or local company.
- The partners pay tax on their share of income from the partnership according to their own personal rates of income tax.
- You can consider using an LP if you wish to invest in a business without participating in its management and you place a greater value on having limited liability protection compared to being involved in the LP’s management.
- The limited partner must be careful not to carry out any activities that may be considered as “participation in management”.
- This is because once a limited partner participates in the management of the business, he will lose the limited liability protection and he will instead become personally liable for the entity’s’ debts going forward.
- A list of activities that the limited partner may carry out without being considered as “participating in management” may be found in the First Schedule to the Limited Partnerships Act.
- An LP is not a separate and distinct legal entity. As such, it is not entitled to sue and be sued in its own name or own land in its own name. Instead, the LP can be sued in the names of individual partners.
- Limited Partnership (LP):
In addition, it will not have perpetual succession (i.e. it will terminate upon the death or departure of the owners or partners). This is because only entities with perpetual succession can continue to exist and operate upon the death or departure of the owners without having to transfer property whenever there is a change of its ownership.