It wasn't unheard of for businessmen and professionals to invest $100,000 in these partnerships in order to have a tax write-off of $1 million, saving far more than $100,000 in tax - at least until Sir Robert Muldoon spoiled the party by changing the laws some 20 years ago.

New Zealand has now introduced limited partnerships which are very similar to the old special partnerships. Limited partnerships don't have quite the same tax benefits, but they do protect investors against partnership debts. They are extremely flexible and work very well in a joint-venture situation, or when a group of people join forces to set up a business.

What is a limited partnership?

In New Zealand, a limited partnership is a separate legal personality distinct from its owners (the partners), in the same way as a company is distinct from its shareholders. As a result, the investors (limited partners) have limited exposure to liability to the amount of their investment, while keeping the flow-through tax treatment to partners of gains and losses similar to a general partnership.

This hybrid treatment of limited partnership gives it the tax and/or investment flexibility of a general partnership and the investment security of a company.

So How does a Limited Partnership Work?

Partners
A limited partnership must have at least one general partner and one limited partner. A person may not be both a general partner and a limited partner at the same time. However, the role may change at any time.

• General Partners. The general partner manages and attends to specific legal administrative responsibilities of the partnership. A general partner will be liable with the limited partnership for (residual) debts and liabilities.
• Limited Partners. The limited partners are passive investors. They do not take part in management outside certain specified activities or “safe harbours” as provided in the Act.

Capital contribution
A contribution is not mandatory and will be subject to the terms of the limited partnership agreement. However, a loan by a partner to the limited partnership is not a capital contribution.

Limited Partnership Agreement
A limited partnership must have a written partnership agreement covering a number of specific issues.

Registration
Limited partnerships are registered, just like companies and charities. The Companies Office maintains the electronic register. A limited partnership should not commence trading or incur debt until it is registered. The names and addresses of each general partner are publicly obtainable, while details of the limited partners are limited to the Registrar. The anonymity exists to encourage greater investment in the limited partnership.

Please contact Les Allen at our city office or Michael Hockly at our Albany office if you think limited partnerships may be relevant to you.