Set up and register a limited partnership

Limited partnerships are often used as vehicles for investment to pool the assets of individuals and entities to enable investment.

For start-ups and small businesses, a limited partnership may suit those with high running costs that also need a lot of investment up front. For example, restaurants, bars, or hotels that require significant funding for property and equipment can gain funding from limited partners, and be managed by general partners. Likewise, businesses such as environmental start ups could consider limited partnership to facilitate large investment but maintain the management of the business.

They can also 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.

Scottish limited partnerships are distinct from those elsewhere in the UK, as they are considered as a legal entity in their own right, separate from each partner. As they can have assets, secure lending, and enter into contracts without the partners themselves being visible, they could be misused for economic crime.

Recent reforms to limited partnerships - and Scottish limited partnerships in particular - were introduced through the Economic Crime and Corporate Transparency Act 2023. This improves corporate transparency to help prevent economic crime and has reformed the role and powers of Companies House to verify the identities of business directors and enforce rules to hold companies accountable.

This means stricter transparency and registration requirements for limited partnerships, such as filing and verifying detailed partner information, as well as different rules on what counts as a UK registered office.

An individual or legal body (such as another company) can be either a general or a limited partner, but they cannot be a general and a limited partner at the same time, because general and limited partners have different responsibilities.

General partners are liable for all debts and obligations of the partnership and control the day-to-day running and management of the business. Therefore, if a business does not perform well, the personal and other business assets of all general partners could be at risk.

Limited partners could be thought of as 'silent partners', and are only liable for the debts or obligations they put into the business. They 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.

A Scottish limited partnership must be registered with Companies House, 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 to 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.

With the Economic Crime and Corporate Transparency Act 2023, limited partnerships will need to provide more information to Companies House, and this will need to be filed by a Companies House authorised agent.

Application form

You need to complete an Application for registration of a limited partnership in Scotland form LP5(s) and 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 Form LP5(s) 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.

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. This includes any statement of increase in the amount contributed by limited partners.

You can download form LP6 for Scottish limited partnerships on the Companies House website. As with the original application form, the general partners are responsible for filing form LP6 at Companies House even if accountants or other professionals have helped in their preparation.

Annual confirmation statement

Scottish limited partnerships must file an annual confirmation statement with Companies House to confirm that the partnership's 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.

Once you've registered the limited partnership, Companies House will notify HM Revenue and Customs (HMRC).

Unlike limited companies, limited partnerships are not liable for Corporation Tax. 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 the limited partnership. The partners, not the limited partnership itself - pay tax on income or gains.

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.

Each partner in the limited partnership must register with HMRC separately to set up their individual self-assessment tax records.

Seek expert advice from a qualified tax accountant or tax adviser where needed.

You can dissolve your limited partnership for various reasons, such as financial reasons, business purposes, or personal disagreements. This 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 their 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

Under the Economic Crime and Corporate Transparency Act 2023 you must notify Companies House of the dissolution of a limited partnership either by sending form LP6 or using the online service. Failure to do so means general partners may be guilty of an offence.

If you need assistance or support in setting up or dissolving a limited partnership, or understanding tax obligations, seek expert advice from a solicitor or accountant.