The Cayman Islands Exempted Limited Partnership is a business form that may be set up by two or more partners willing to carry out the same activities for the purpose of deriving profits. A key difference between this partnership and other business forms in the Cayman Islands is that has no separate legal entity from its founders. This is an important aspect that created unlimited liability for the partners, further discussed in this article.
The Exempted Partnership Law is the one governing these types of business forms in the Islands. In addition to this, the Partnership Law is another legal resource on which investors can rely when dealing with specific matters. One of our Cayman Islands incorporation agents can give you complete details on these laws as well as assist you in the creation of an exempted limited partnership.
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What are the main characteristics of the exempted Cayman Islands limited partnership?
The exempted limited partnership is a business form with no legal personality, unlike the Cayman Islands exempted company. However, just like other business forms in the Islands, it is not subject to taxation. The partners in an exempted limited partnership can be individuals or other corporations.
This partnership is formed by a minimum of two partners: a general and a limited one. The general partner is the one with the entire management responsibilities while the limited partners are only engaged in management activities in some isolated cases. The general partner is also the one to bear unlimited liability in the event of the breakdown of the partnership and the one who will always need to act in good faith for the partnership.
When a limited partner takes up the role of managing the business for some time, he is then considered a general partner and, for the duration of his attributions as a manager, will lose his limited liability. Some of the activities a limited partner can engage in without losing their status include the following:
- advising or consulting with a general partner, as per the partnership agreement.
- attending or requesting partner’s meetings as well as approving or dismissing amendments to the partnership agreement.
- taking the needed steps or participating in the dissolution of the partnership.
- appointing or removing other general or limited partners as well as other persons who will be part of the board or committee.
- acting as a director of a corporate general partner.
The exempted limited partnership agreement is the document that expressly states the attributions and duties of both the general partner and the limited one and it should be drawn up in such a manner as to ensure that there is no inadequate loss of limited liability for the partners that occupy this position. One of our Cayman Islands company formation agents can help you during the draw up of the agreement.
We invite you to watch a short video on this type of partnership:
How is the exempted limited partnership incorporated?
In order for a partnership of this kind to be fully functional and act legally, it must be registered immediately upon its formation. The application for registration is submitted to the Registrar, together with a statutory statement signed by the general partner. When this partner cannot be present to sign the statement in person, it can be signed by another party in his name.
The exempted limited partnership statement will include the name and the general description of the new business as well as the registered office address, which is mandatory and needs to be in the Cayman Islands. The particulars of the general partner are also clearly outlined as well as the terms under which the partners enter into the agreement (when applicable).
The name of the partnership must state the business form, meaning that L.P./LP or Limited Partnership will appear after the name.
An important advantage for this business form is that they can be incorporated easy and there are no regulatory approvals that need to be obtained by the founders. Once all of the documents are submitted with the Registrar, the certificate of registration is issued in approximately 3 to 5 working days. Partners also have the option for express incorporation and, according to the procedure, an express fee is payable.
What are the attributions of the partners?
When referring to the rights and obligations of the partners we generally talk about those that fall onto the general partner. As previously stated, the limited partner retains his limited liability as long as he does not engage in management activities. In general, this partner will have a passive role and will only provide the needed capital. The general partner, however, is required to engage in the proper conduct of the partnership’s business as well as exercise a high standard of care. He is the one who signs all contracts, deeds, instruments or documents (or an agent) and when signed by the general partner they shall be signed on behalf of the limited partnership.
Any debts the general partner incurs while doing business become the debts or obligations of the exempted Cayman Islands limited partnership. When the partnership has more than one general partner, and the agreement may provide details on which of the two shall act as the general partner and exercise the authority, including reserving the power to exclude the other general partner. When the partnership has two general partners and one of them withdraws (in accordance with the terms set forth in the agreement for this action), then all future activities will be undertaken by the remaining general partner and he will be liable for the property of the exempted limited partnership, according to law (all the contracts, obligations, charges, debts and liabilities incurred by the partnership).
The limited partner does not owe a fiduciary duty to the general partner when exercising his duties, rights or authorities or when performing hos obligations or duties towards the partnership itself or the other partner(s). Our team of Cayman Islands lawyers can give you more details about the duties. When the limited partner engages in the conduct of business and deals with parties that are not partners, then the said limited partner will be liable, in the event of insolvency, for all the debts and obligations incurred during the time he participated in the conduct of the business (as if he were the general partner). However, he shall only be liable to the person or persons who engaged in business activities in the said period believing that he was the general partner and not the limited one.
The exempted limited partnership is required to file an annual return with the Registrar and must pay the annual return fee. The general partner signs this return.
Some of the fees are the following:
- $1,000: the annual fee for the exempt Cayman Islands limited partnership;
- $400: for express registration and $100 for express filing; these actions can be completed either until the end of the working day or before 12PM on the following working day (depending on when the payment is made);
- $150: for the inspection of the records and statements of the annual fee for the exempted limited partnership;
- $200 per day: the penalty for failure to file the file changes for an exempted limited partnership; the maximum penalty in this case is $1000.
The fees are expressed in Cayman Islands Dollars. Please keep in mind that these fees can be updated. We strongly recommend that you reach out to our agents who specialize in the taxation of the Cayman Islands limited partnership in order to receive details as needed.
Exempted partnership accounts
The “exempt” quality makes this type of partnership subject to no taxes in the Cayman Islands, however, certain requirements remain in place for keeping proper accounts. The general partner is also the one responsible with this and for this purpose he has to:
- record the amounts received and expended by the exempted limited partnership; the receipts shall reflect these recordings;
- take note of all the sales and purchases;
- maintain records of the exempted limited partnership’s assets and liabilities.
The books of account must provide for a true and fair financial situation of the Cayman Islands limited partnership and must be able to explain all the transactions in which the business has entered. The general partner can choose to keep the books at any other location, not necessarily at the registered office in the Islands (or at the place of business in the Islands), however, when doing so, he shall inform the tax authorities of their location or will make them available in electronic form (or in any other format) upon request. These books are to be kept for at least 5 years from the date they are drawn up.
Other options for investors
The limited partnership in the Cayman Islands is an alternative to the exempted one. These types of partnerships are governed by the Partnership Law and their registration with the Registrar of Limited Partnerships is mandatory.
The limited partnership can be opened by two or more natural or legal persons for various types of activities, including mercantile ones, for land holding and development, for agricultural purpose of for manufacturing ones as well as for tourism purposes. This partnership will require a license issued by the Trade and Business Licensing Board. When one of the partners is a legal entity, it can fulfill the role of the general or the limited partner, with the same duties and responsibilities for the general partner as the ones described above in the case of the exempt Cayman Islands limited partnership (full liability for the debts and obligations of the partnership).
The registration fee for the limited partnership is the lowest of the three forms, at $850 (compared to the aforementioned $1,000 for the exempt form and the $1,350 for the foreign limited partnership).
One of our Cayman Islands incorporation agents can help investors open an exempted limited partnership of another business form of their choice. Contact us for more information about investing in the Islands and the advantages for foreign investors.