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BVI International limited partnerships
APRIL 2013
The Partnership Act 1996 (the Act), which
combines elements from both the UK Limited
Partnership Act 1907 and the Delaware Revised
Uniform Limited Partnership Act 1983, sets
out a flexible framework for the formation
and operation of BVI international limited
partnership (ILPs).
ILPs have become popular vehicles for a broad
range of investments. This briefing examines
their key features, benefits and potential uses.
What is an ILP?
General characteristics
An ILP:
• is a partnership formed between at least
one general partner and one limited
partner that is registered as an ILP under
the Act;
• confers (except as noted below) limited
liability on its limited partners in respect
of its debts and other obligations;
• is a relationship between its partners and
does not have its own legal personality
separate from its partners; and
• may be formed for any object or purpose
that is not prohibited by the Act or any
other BVI law.
Regulatory matters
An ILP may not:
• carry on any banking business,
trust company business, insurance
(including as agent, adjuster or broker)
or reinsurance business or company
management business unless it is licensed
to do so or exempt from being licensed;
• carry on any business with any person
resident in the BVI; or
• own any real estate in the BVI other than a
lease of an office.
An ILP will not be regarded as a mutual fund
under the Securities and Investment Business
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This briefing is only
intended to give a
summary and general
overview of the subject
matter. It is not intended
to be comprehensive and
does not constitute, and
should not be taken to be,
legal advice. If you would
like legal advice or further
information on any issue
raised by this briefing,
please contact one of your
usual Mourant Ozannes
contacts.
Contacts:
Rachael McDonald
Partner, BVI
Michael Williams
Partner, BVI
Simon Lawrenson
Partner, Hong Kong
Paul Christopher
Partner, Hong Kong
John Rochester
Senior Associate, Jersey
For contact details,
please see the end of this
briefing.
mourantozannes.com Act 2010 if a partner is not entitled to receive
on demand, or within specified period of
demand, an amount calculated by reference
to the value of a proportionate interest in the
whole or a part of the net assets of the ILP.
Constitutional documents
The constitutional documents for an ILP are
structured in the same way as those for a BVI
company. They consist of a memorandum of
partnership (memorandum) and articles of
partnership (articles).
Memorandum
The memorandum must contain the following
information for the ILP:
• its name (which must end in Limited
Partnership or L.P.) and (if applicable) any
additional foreign character name;
• its objects and purposes;
• the address in the BVI of its registered
office;
• the name and address in the BVI of its
registered agent;
• the full name and address of each general
partner;
• its term or a statement that it has an
indefinite term;
• a statement that it is a limited partnership;
• a statement that every partner not named
as a general partner is a limited partner;
• a statement that it may not carry on any
activity prohibited by the Act; and
• anything the articles require to be
included in the memorandum.
Articles
The articles are equivalent to a limited
partnership agreement in other jurisdictions.
They typically contain provisions dealing with
the following matters relating to the ILP:
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its name;
the name of its registered agent;
the name and address of each partner
and the amount each partner has agreed
to contribute to it;
• the way in which its memorandum and
articles may be amended;
• the keeping of its accounting records and
the preparation and (if applicable) audit of
its financial statements;
• the share of profits or compensation
by way of income to which each limited
partner is entitled;
• the events which give rise to the right
to, and the procedure for, the return of
contributions to its partners and whether
contributions may be returned otherwise
than in cash;
• the procedure for assignment of
partnership interests, admission of new
partners and withdrawal of partners;
• the powers and obligations of each
general partner and any limitations on its
powers;
• whether a remaining general partner
may continue the ILP's business after the
retirement, death, incapacity, bankruptcy
or insolvency of another general partner;
and
• its winding up and dissolution.
Amendments
An ILP's memorandum and articles may
be amended in the manner specified in its
articles.
If there is a change to the details in its
memorandum, the ILP's registered agent
must sign and file with the BVI Financial
Services Commission (the Commission) a
supplementary memorandum within 30 days.
Forming an ILP
To form an ILP:
• at least one general partner and one
limited partner must sign articles for the
ILP and give them to the registered agent
named in them;
• the registered agent must sign a
memorandum for the ILP and file it with
the Commission and pay the registration
fee (currently US$500); and
•
the Commission must register the details
contained in the memorandum in the
register of limited partnerships and issue a
certificate of limited partnership.
A general partnership will only become an ILP
(so that its limited partners will enjoy limited
liability) once it is registered as an ILP by the
Commission.
General and limited partners
A general or limited partner may be an
individual or a partnership, trust or body
corporate. A person may be both a general
and a limited partner, and where this is the
case, the ILP must have at least one other
partner.
General partners
A general partner is responsible for the day
to day management and control of the ILP's
business and affairs and is liable for all debts
and other obligations of the ILP. An ILP's
articles may place limitations on the exercise
of authority of a general partner. In addition,
under the Act a general partner has no
authority (without the written consent of all of
the limited partners) to:
• do any act which contravenes the articles
or which would make it impossible to
carry on the ordinary business of the ILP;
• enter a judgment against the ILP;
• possess or assign any ILP property for a
non partnership purpose;
• admit any general or limited partner
unless it is given the authority to do so in
the articles; or
• continue the ILP's business after the
retirement, death, incapacity, bankruptcy
or insolvency of another general partner
unless it is given the authority to do so in
the articles.
All property of an ILP is held by the general
partner on behalf of the ILP and must be used
by the general partner exclusively for the
purposes of the ILP.
A general partner is not required to be a BVI
company or resident in the BVI.
Limited partners
A limited partner is a passive investor who
does not participate in the day to day
management and control of the ILP's business
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mourantozannes.com and affairs and (except as noted below) is not
liable for the debts and other obligations of
the ILP.
A limited partner will contribute to the
property of the ILP and has a right to receive
the return of that contribution and the share
of the profits of the ILP or compensation by
way of income set out in the articles.
A limited partner has a right to inspect and
copy the ILP's books (including its register
of limited partnership interests), receive
on demand true and full information of all
things affecting the ILP and be given a formal
account of ILP's affairs whenever it is just and
reasonable.
Liability of limited partners
Liability for ILP's debts and other obligations
A limited partner will only be liable for the
debts and other obligations of an ILP if:
• the limited partner is also a general
partner;
• the limited partner participates in the
control of the ILP's business, in which
case, the limited partner will be liable
as a general partner to any person who
conducts business with the ILP and
reasonably believes (based on the limited
partner's actions) that the limited partner
is a general partner; or
• the limited partner's name appears in
the ILP's name, in which case, the limited
partner will be liable as a general partner
to any creditor who gives credit to the ILP
without actually knowing that the limited
partner is not a general partner.
Permitted actions
The Act sets out a number of actions that
may be taken by a limited partner that will not
amount to participating in the control of the
ILP's business. These include:
• being an independent contractor for, or
conducting business with, or being an
agent or employee of, the ILP or a general
partner;
• consulting with, or advising, a general
partner on any matter;
• acting as a guarantor or surety of the ILP
or a general partner;
• calling or participating in a meeting of
partners or limited partners;
•
serving on a committee of the ILP or the
limited partners;
• taking, or refraining from taking,
any action (including by proposing,
approving, consenting, disapproving or
voting) with respect to (among other
things) any:
-- sale, exchange, lease, mortgage,
assignment, pledge or other transfer
of, or creation of a security interest
in, any asset of the ILP;
-- incurrence, renewal, refinancing or
payment or other discharge of any
indebtedness by the ILP;
-- change in the nature of the ILP's
business;
-- admission, removal or retention of a
general or limited partner;
-- transaction or other matter involving
an actual or potential conflict of
interests;
-- amendment to the ILP's
memorandum or articles; or
-- other matter that is stated in the
ILP's memorandum or in any written
agreement;
• being a director, officer, consultant,
shareholder, partner (other than a general
partner), member, manager, trustee or an
agent or employee of, or being a fiduciary
or contractor for, any person in which
the ILP has an interest or any person
providing management, consulting,
advisory, custody or other services or
products to or for, or otherwise having a
business or other relationship with, the
ILP or a general partner; and
• exercising any right or power given to
limited partners under the Act.
Liability to the ILP
A limited partner is only liable to contribute to
the ILP:
• the difference (if any) between the
amount which the articles say the
limited partner has contributed and the
amount the limited partner has actually
contributed to the ILP; and
• the amount of any contribution which the
limited partner has agreed in the articles
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yet made.
Contributions of limited partners
Form
A limited partner may make a contribution
to the ILP in the form of cash, property or
services.
Return of contribution
Despite the form of a limited partner's
contribution to an ILP, the limited partner only
has the right to demand and receive return
of the limited partner's contribution in cash,
unless the articles allow, or all the partners
consent to, the contribution being returned in
another form.
A limited partner may not receive from a
general partner or from the ILP's property
the return of any of the limited partner's
contribution until:
• all of the ILP's liabilities, except any
liabilities to general and limited partners
on account of their contributions, have
been paid or there remains property of
the ILP sufficient to pay them;
• unless the limited partner is entitled to
demanded return of the limited partner's
contribution, all of the partners have
consented to the return; and
• if the articles do not provide for the return
of contributions, they are amended to
provide for it.
Where the conditions mentioned above
are satisfied, a limited partner is entitled to
demand the return of the limited partner's
contribution:
• upon the dissolution of the ILP unless
other partners are entitled to continue
the business of the ILP under its articles
and they decide to do so;
• if the time or an event specified for
its return in the articles has arrived or
occurred; or
• if the articles do not specify a time for
its return or the dissolution of the ILP or
any event for its return, after the limited
partner has given six months' notice in
writing to all of the other partners.
Wrongful return of contribution
If any part of a limited partner's contribution
is returned in breach of the conditions
mentioned above, the limited partner:
• holds that part of the money or other
property returned to the limited partner
on trust for the ILP; and
• is liable to the ILP for that part of the
contribution returned if, at the time of
receipt, the limited partner knew that part
of the return was made in breach of those
conditions.
Dealings with the ILP
A limited partner may lend money to, and
conduct other business with, an ILP. To the
extent that a limited partner is a creditor of the
ILP:
• its claim (as a creditor) will rank equally
with the claims of the ILP's other creditors;
• it may not take security over any property
of the ILP to secure its claim; and
• it may not receive from a general partner
or the ILP any payment, transfer of an
asset or release from any liability owed
to the ILP, if at that time, the assets of
the ILP are insufficient to discharge the
ILP's liabilities other than its liabilities to
general partners and limited partners in
those capacities.
Distributions
A limited partner is entitled to be paid
by an ILP the share of the ILP's profits or
compensation by way of income that is stated
in the articles.
A distribution (whether paid from the
property of the ILP or a general partner) may
only be paid to a limited partner if, after the
distribution is paid, the ILP's assets exceed its
liabilities except for any liabilities to a limited
partner for the limited partner's contribution
and to a general partner.
Changes in partners
New partners
Once an ILP has been formed, a new partner
may be admitted by amending its articles
to include the new partner. If a new general
partner is to be admitted, a supplementary
memorandum must be filed with the
Commission.
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mourantozannes.com Assignment
Subject to any prohibition in, or consent
required under, an ILP's articles, a limited
partner (the assignor) may assign the
assignor's interest in the ILP to another person
(the assignee).
Unless the assignee is admitted to the ILP
as a substituted limited partner under the
ILP's articles or with the consent of all of the
partners, the assignee:
• has no right to require any information
or account of the ILP's transactions or to
inspect the ILP's books; and
• will only be entitled to receive the share
of the ILP's profits or other compensation
by way of income or the return of
contribution to which the assignor would
have be entitled.
Substitution
An assignee may only become a substituted
limited partner if:
• all of the partners (other than assignor)
consent;
• the assignor is empowered by the articles
to, and gives, the assignee that right; or
• the articles allow the admission of the
assignee with the prior approval of one or
more partners (other than the assignor)
and that approval is given.
An assignee only becomes a substituted
limited partner upon the execution of an
amendment to the articles reflecting the
assignee's admission or any later date set
out in the amendment. If the assignor is
a general partner, the admission of the
assignee will not become effective until a
supplementary memorandum is registered by
the Commission.
General administration
Registered office
Like a BVI company, an ILP must have a
registered office in the BVI at all times.
The general partner must keep at the ILP's
registered office the original copy of its
register of limited partnership interests and
each record and underlying document of the
ILP, or alternatively:
• keep a copy of the register at the ILP’s
registered office;
• notify the ILP's registered agent of any
change to the register within 14 days
and provide it with a copy of the register
which records the change as soon as
reasonably practicable; and
• notify the ILP's registered agent in writing
of the location where the original records
and underlying documents are kept.
Registered agent
Like a BVI company, an ILP must have a
registered agent in the BVI at all times.
The primary role of a registered agent is to
keep at its office an original or copy of the
register of limited partnership interests and
the ILP's records and to file documents with,
and receive documents from, the Commission
on behalf of the ILP. It will normally provide the
ILP with a registered office address but it need
not do so.
Records and underlying documents
An ILP must keep records and underlying
documents (including financial information)
that:
• are sufficient to explain the transactions
entered into by the ILP; and
• will enable the financial position of the
ILP to be determined with reasonable
accuracy at any time.
The ILP must keep records and underlying
documents for a period of at least five
years from the date of completion of the
transaction, or the ILP terminates a business
relationship, to which they relate.
The Act does not require an ILP to produce
financial statements or to appoint an auditor,
although the articles will frequently require
these things.
Register of limited partnership interests
The general partner must maintain at an
ILP's registered office a register of limited
partnership interests. The register must
record:
• the name and address of each partner;
• the amount of each contribution made by
each partner and the date on which it was
made; and
• the amount of contribution returned to
each partner and date on which it was
returned.
Any change to the details recorded in the
register must be made within 21 working days
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mourantozannes.com of the change.
Public information
The memorandum (and any supplemental
memorandum) is the only document
relating to an ILP that must be filed with the
Commission, and accordingly, it is the only
document that is publicly available and open
for inspection. Neither the articles nor the
register of limited partnership interests is
publicly available. Consequently, the identity
of each limited partner remains confidential.
Dissolution
Events causing dissolution
An ILP will be dissolved if any of the following
events occur:
• subject to any contrary agreement
between the partners:
-- (if the ILP was formed for a fixed
term) that term expires;
-- (if the ILP was formed for an
indefinite term) a partner gives
notice to the other partners
dissolving the ILP; or
-- the purpose or undertaking for
which the ILP was formed ends;
• unless the memorandum or articles state
otherwise, a limited partner charges
the limited partner's interest in the ILP's
property to secure a non partnership debt
owed by the limited partner and the other
partners elect to dissolve the ILP;
• it becomes unlawful for the ILP to carry
on the ILP's business or for the partners to
carry on the business in partnership;
• on application by a partner, the court
orders the ILP to be dissolved on any
ground specified in the Act, including
that:
-- a partner is guilty of conduct which
the court considers is calculated to
prejudicially affect the business of
the ILP;
-- a partner wilfully or persistently
breaches the memorandum or
articles or otherwise acts in a
way that means is not reasonably
practicable for the other partners to
carry on the business of the ILP with
the partner;
-- the business of the ILP can only be
carried on at a loss; and
the court is of the opinion that
circumstances have arisen which
make it just and equitable that the
ILP be dissolved;
• a limited partner dies or becomes
bankrupt, unless all of the remaining
limited partners vote within 90 days to
continue the ILP;
• a general partner retires, dies, suffers
incapacity or becomes bankrupt or
insolvent, unless the remaining general
partners:
-- are given the power to continue the
ILP's business under the articles and
choose to do so; or
-- choose to continue the ILP's
business with the consent of all of
the partners; or
• a limited partner requires the ILP to be
dissolved because the:
-- limited partner is entitled to demand,
and has demanded, the return of
limited partner's contribution and it
is not returned in full; or
-- other liabilities of the ILP have not
been paid or the ILP's property is
insufficient to pay them and the
limited partner would otherwise be
entitled to the return of the limited
partner's contribution.
Procedure
Where ILP is solvent
Where an ILP is solvent, the procedure to wind
up and dissolve the ILP is as follows:
• the general partner must approve a plan
of dissolution for the ILP which states
(among other things):
-- the reason for its winding up and
dissolution;
-- that it is, and will continue to be, able
to discharge or pay or provide for, its
debts and other obligations in full;
and
-- the name, address and remuneration
of each person to be appointed as
liquidator (a body corporate may not
be appointed as liquidator);
• the ILP must execute articles of
dissolution which set out the plan of
dissolution and state the way in which the
plan of distribution was authorised;
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the general partner must file the
executed articles of dissolution with the
Commission;
• the Commission must register the
articles of dissolution (the ILP's winding
up and dissolution commences on the
date on which the articles of dissolution
are registered or any other date (not
exceeding 30 days) specified in the
articles of dissolution);
• within 30 days of the date on which the
articles of dissolution are filed with the
Commission, the general partner must
publish in the BVI Official Gazette and in a
publication circulating generally in the BVI
a notice stating:
-- that the ILP is in dissolution;
-- the date on which the ILP's
dissolution commenced; and
-- the name and address of each
liquidator;
• once the liquidator has completed the
ILP's winding up and dissolution, the
liquidator must file with Commission a
statement to that effect;
• the Commission will strike off the name
of the ILP from the register of limited
partnerships and issue a certificate
of dissolution (the ILP's dissolution is
effective from the date specified in the
certificate); and
• immediately following the issue of the
certificate of dissolution, the liquidator
must publish in the BVI Official Gazette
and in a publication circulating generally
in the BVI a notice that the ILP has been
dissolved and struck off the register of
limited partnerships.
Where ILP is insolvent
Where an ILP has been dissolved (other than
by an order of the court) and the general
partner or the liquidator believes that the ILP
will not be able to pay or discharge all of its
debts, liabilities and other obligations in full:
• the general partner or (if appointed) the
liquidator must notify the Commission of
this fact; and
• after the notice is given, the dissolution
provisions of the Insolvency Act 2003
will apply (having made any necessary
changes) to the winding up and
dissolution of the ILP as though it were a
BVI company.
Taxation
General
One of the primary attractions of an ILP as
an investment vehicle is that it will be treated
as transparent for tax purposes in most
jurisdictions. This means that profits or losses
of the ILP are attributed to its partners who
will be taxed according to their proportionate
share of the profits or losses.
In addition, under the tax laws of many
jurisdictions:
• a partner is able to set off the partner's
share of any losses of the ILP against
profits arising from its other investments;
and
• a profit made by the ILP will be treated
as arising in the country in which the
relevant investment is made, and
accordingly, a partner may be able to
take advantage of any double tax treaty
between the country in which the
investment is located and the country in
which the partner is resident.
BVI taxation
The Act confers following tax exemptions on
an ILP:
• it is not liable to any BVI tax;
• no payment made by it to, and no capital
gain realised from an interest in it by, a
person who is not resident in the BVI is
subject to any BVI tax;
• no estate, inheritance, succession or gift
tax, duty, levy or other charge is payable
by a person who is not resident in the BVI
relating to any interest in it; and
• no stamp duty is payable on any
instrument relating to a transfer of
property to or by it, a transaction
in respect of the interests of it or its
business.
Potential uses
An ILP can be used as a vehicle for:
• holding private equity and venture capital
investments;
• management buy-out and project
finance transactions;
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holding and/or developing real estate;
mutual funds;
tax and financial planning purposes;
estate planning and asset protection
purposes; and
• banks to raise capital.
Benefits of an ILP at a glance
The benefits of an ILP include:
• it can be set up quickly and has
comparatively low set up and running
costs;
• it is exempt from all forms of BVI tax and
stamp duty;
• it is transparent for tax purposes in most
jurisdictions so that its profits and losses
are attributed to its partners;
• the identity of its limited partners remains
confidential;
• except as noted above, its limited
partners are not liable for its debts and
other obligations;
• it is more flexible than a company, and in
particular, can easily distribute its profits,
and return capital contributions before its
dissolution, to its limited partners; and
• it is not required to appoint a BVI resident
general partner or an auditor.
Contacts:
Rachael McDonald, Partner, BVI
+1 284 852 1722
rachael.mcdonald@mourantozannes.com
Michael Williams, Partner, BVI
+1 284 852 1717
michael.williams@mourantozannes.com
Simon Lawrenson, Partner, Hong Kong
+852 3995 5707
simon.lawrenson@mourantozannes.com
Alex Last, Partner, Hong Kong
+852 3995 5703
alex.last@mourantozannes.com
Paul Christopher, Partner, Hong Kong
+852 3995 5701
paul.christopher@mourantozannes.com
John Rochester, Senior Associate, Jersey
+44 1534 676 372
john.rochester@mourantozannes.com
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