On 29 November 2016, the Limited Partnerships Bill 2016 (WA) (Act) received Royal Assent.
Background: What is a Limited Partnership?
A limited partnership is an arrangement where:
- the liability of at least one of the partners – the “limited partner” is limited to the capital they have contributed; and
- there is at least one “general partner”, whose liability is unlimited.
The other significant difference between general partners and limited partners is that general partners manage the business of the partnership, whereas limited partners are unable to do so.
What is an Incorporated Limited Partnership?
The Act also introduces incorporated limited partnerships (ILPs), as a statutory form of limited partnership.
An ILP is a special type of limited partnership where the partnership is a distinct legal entity. ILPs provide an attractive investment vehicle, especially for those engaging in high-risk venture capital projects. This is due to:
- ILPs being responsible for all of their own debts and obligations; and
- ILPs being the preferred entity used by those applying for registration of a limited partnership under the Venture Capital Act 2002 (Cth) (VCA). An important benefit of being registered under the VCA include ILPs obtaining concessional tax treatment including flow-through taxation treatment and capital gains tax exemption.
What else is going to change?
The substantive content of the Act has not yet come into operation, however will profoundly change partnership law in Western Australia, through the:
- modernisation of the formation, membership and registration provisions to reflect best practice;
- expansion of provisions that establish a limitation of liability for limited partners;
- broadening of the safe harbour provisions for the involvement of limited partners;
- requirement for limited partnerships that are involved in business activity to inform third parties of their status;
- inclusion of powers for the Commissioner to investigate potential breaches of the Act; and
- introduction of disqualification provisions that affect individuals involved in the management of limited partnerships.
These changes will bring Western Australia in line with most other state and territory jurisdictions in Australia, which have already enacted similar legislation and will increase Western Australia’s competitiveness in attracting venture capital investment.