Set up and register a limited partnership

This guide explains what a limited partnership is, and how it can be created. It explains why limited partnerships must be registered with Companies House and how they are treated for tax purposes.

Guide

5 min read

1. Overview

Distinct from general partnerships and limited liability partnerships, a limited partnership is a business structure which has both general and limited partners. General partners are liable for the full amount of the partnership's debt and the day to day running of the business. Limited partners are only liable for the debts or obligations that they initially invest in the business, and cannot participate in the management of the business.

This guide explains what a limited partnership is, and how it can be created. It explains why limited partnerships must be registered with Companies House and how you can do this. It also tells you how limited partnerships are treated for tax purposes.

2. Definition of a limited partnership and partners

A limited partnership is any partnership that includes one or more general partners and one or more limited partners among its officers.

A limited partnership is a different business model to both a general partnership (where all partners have an equal share of the profits, management, and liability of the company) and a limited liability partnership (where all partners share limited liability of the company).

Differences between general and limited partners

Any individual or legal body (such as another company) can be a partner in a limited partnership, as either a general or a limited partner. However, you cannot be a general and a limited partner at the same time.

General partners are liable for all debts and obligations of the partnership and control the day-to-day running and management of the business. Limited partners could be thought of as 'silent partners', and are only liable for the debts or obligations they put into the business, and cannot participate in the management of the business.

Because limited partners have some form of legal protection from incurring any additional debts, they may not:

  • take out their contribution to the partnership for as long as it exists
  • control or manage the business
  • have the power to make any binding decisions for the firm

If a limited partner chooses to remove any of their original contribution they will lose their protection. They will become liable for debts or obligations up to the amount they have received from the partnership. If a limited partner opts to manage the business for a length of time, they will also become liable for any debts or obligations incurred throughout this period.

Scottish limited partnerships

Scottish limited partnerships are distinct from those in the rest of the UK, as Scottish limited partnerships are considered as a legal entity, separate from each partner. Because of this, Scottish limited partnerships must provide more details to Companies House.

Legislative reform

The government is introducing reforms to limited partnerships - and Scottish limited partnerships in particular - to tighten requirements and update the legislation in order to prevent abuse of limited partnership formation for criminal purposes. It is important to keep up to date with all of the legal requirements of forming limited partnerships.

3. When is a limited partnership used

Limited partnerships are often used as vehicles for investment, to pool the assets of individuals and entities and enable investment. They can be an efficient way of structuring funds (such as venture capital, private equity, or pension funds), holding commercial property, and funding creative ventures (such as film or theatre productions) as the liabilities of the investors are limited to the sum of the assets they contributed.

For small businesses, limited partnerships could sometimes be an option for those with high overheads and large start up costs. For example, restaurants, bars, or hotels that require significant funding for property and equipment to get started can gain funding from limited partners and be managed by general partners. Likewise environmental funds and start ups could consider limited partnership to facilitate large investment but maintain the management of the business.

All businesses considering limited partnerships must keep in mind their legal obligations and the fact that general partners hold all of the liability for the businesses debts and obligations. If a business does not perform well, the personal and other business assets of all general partners could be at risk.

4. Register a limited partnership

A Scottish limited partnership must be registered with Companies House. You must register a limited partnership in accordance with the Limited Partnership Act 1907. The Scottish Partnerships (Register of People with Significant Control) Regulations 2017 require Scottish limited partnerships (and qualified Scottish general partnerships) to disclose their persons of significant control to Companies House. The partnership also has a duty investigate and obtain information on all partners and entities with significant control, and Scottish limited partnerships must file an annual confirmation statement under these regulations.

You need to complete an 'Application for registration of a limited partnership in Scotland form' - LP5(s) - list all persons with significant control, and have it signed by all the partners of the business, and return it to the Registrar of Companies.

The general partners are responsible for filing Forms LP5(s) and LP6 at Companies House even if accountants or other professionals have helped in their preparation.

The Limited Partnerships Act 1907 provides for the levying of penalties for failing to send the required forms to the Registrar.

You can apply for registration of a limited partnership in Scotland via the LP5(s) form.

You must include the following information:

  • the firm's name
  • nature of the business
  • the business address
  • full details of people with significant control, relevant legal entities, and other registrable persons, and their nature of control
  • name and signature of each general partner
  • name, signature, and amount that each limited partner is contributing and the form that the contribution is to take

The standard fee for registering a limited partnership is £20.

Changing limited partnership details

You must notify Companies House of any changes to your Scottish limited partnership or any changes to persons, entities, or other registrable persons with significant control.

You can download the necessary forms for Scottish limited partnerships on the Companies House website.

Annual confirmation statement

Scottish limited partnerships must file an annual confirmation statement with Companies House to confirm that the partnerships details are up to date. You must notify Companies House of any relevant changes by filing the appropriate form (as above) before or at the same
time as filing your confirmation statement.

5. Tax matters of a limited partnership

Once you've registered the limited partnership, Companies House will notify HM Revenue and Customs (HMRC). HMRC will then set up the right tax records for the partnership. Each partner in the limited partnership must register with HMRC separately to get their own tax records set up.

Find the form you need to register as a partner on the HMRC website.

Usually, limited partnerships are treated in the same way as general partnerships for tax purposes. Like general partnerships, profits are shared amongst the members of a limited partnership. The partners, not the limited partnership itself - pay tax on income or gains.

Unlike limited companies, limited partnerships are not liable for Corporation Tax. The nominated partner will need to complete a Self Assessment tax return for the partnership every year. Each member of the partnership will need to show their share of the profits on their own tax return.

6. Dissolving a limited partnership

You can dissolve your limited partnership for any number of reasons - for example financial reasons, business purposes, or personal disagreements. For limited partnerships, the dissolution must be handled by the general partners unless the court decides otherwise.

However, a limited partnership cannot be dissolved through the following circumstances:

  • a limited partner giving notice, unless there is a previous agreement between the partners
  • a limited partner offering his share as security for a debt, unless there is a previous agreement between the partners
  • the death or bankruptcy of a limited partner
  • a limited partner is considered a 'person of unsound mind', unless their share cannot be determined

Notifying Companies House

There is no specific requirement for you to notify Companies House when dissolving a limited partnership. If you do notify Companies House of the dissolution of your limited partnership by filling in a form LP6, it will be accepted in good faith. However, the name will still remain on the index of live company names.

For more information on selecting the right legal structure for your business, see our guide on Legal structures: the basics.

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