Limited partnerships are frequently used for the financing of medium to large projects. In a typical financing operation, the general partners of a limited partnership would in its name place debentures or other securities with investors which, upon payment of their contribution to the limited partnership, are then accepted as partners with limited personal liability but without the right to take part in the management of the limited partnership.
Limited partnerships also provide excellent tax planning opportunities and/or asset protection benefits as long as the person for whom such opportunities and/or benefits are sought to be obtained is not also the general partner. The general partner in this case should be a corporation located in a jurisdiction which has recently modernized not only its partnership but also its corporate and trusts laws so as to facilitate the implementation of various tax planning and/or asset protection strategies.
In 1996, St. Kitts enacted a Limited Partnerships Act, a Companies Act and a Trusts Act, each incorporating all features which tax planning and asset protection practitioners would expect to find in modern legislation.
Whereas some jurisdictions have abolished companies limited by guarantee, St. Kitts decided to retain this form of companies as it was envisaged that they could be used advantageously in cases where international tax planning benefits can be achieved by using companies limited by guarantee as general partners of limited partnerships or as trustees of trusts. Alternatively, these companies can of course also be used as limited partners of limited partnerships or as beneficiaries of trusts.
For those practitioners with clients who are prepared to relocate so as to become for tax purposes resident in a tax haven jurisdiction, there is a special feature in our Limited Partnerships Act of 1996 which is worth mentioning here as it could be used in conjunction with any of the above mentioned strategies. Said Act defines an exempt limited partnership as a limited partnership the partners of which are exempt from taxes under section 62(1). That section is particularly interesting because in sub-section (1) thereof it is provided that a limited partnership is not itself a subject to any tax in St. Kitts and that the partners of a limited partnership are exempt from taxes which may arise out of their interest in the limited partnership if the general partners of the limited partnership are in respect of it carrying on business exclusively with persons who are not resident in St. Kitts. This is also the case in one form or another in other jurisdictions, but where our limited partnerships law differs is that in paragraph (b) of sub-section (4) of that same section it is specifically provided that the partners of an exempt limited partnership are not considered resident in St. Kitts. This means that the general and the limited partners of an exempt limited partnership will not loose their tax exemption if they should become resident in St. Kitts.
The same doctrine can be found in our Trusts Act of 1996 which provides that the beneficiaries of an exempt trust are not considered resident in St. Kitts. Again, this means that the beneficiaries of an exempt trust will not loose their tax exemption if they should become resident in St. Kitts. By extension, this would also apply in the case of the settlor of an exempt trust if, but only if, he is also a beneficiary of that exempt trust.
Formation and Establishment of Limited Partnerships
Any two or more persons can form a limited partnership, but a limited partnership must consist of one or more persons who are general partners and one or more persons who are limited partners.A body corporate may be a general or a limited partner and a person may be a general partner as well as a limited partner at the same time in the same limited partnership.Any of the general partners of a limited partnership or a person acting on their behalf may on delivering to the Registrar of Limited Partnerships a declaration of the formation of the limited partnership and on payment of the prescribed registration fee apply for the registration of the declaration.An association of persons will not be a limited partnership until the Registrar of Limited Partnerships has issued a certificate in respect of the above mentioned declaration.
Names of Limited Partnerships
The name of a limited partnership must end with the words “Limited Partnership” or the abbreviation “L.P.”
A limited partnership may use any name provided that the name chosen is not considered misleading or otherwise undesirable by the Registrar of Limited Partnerships and does not contain the name of any limited partner who is not also a general partner.
Every limited partnership must have an office for service in the Federation.
Except as otherwise provided in the Limited Partnerships Act, legal proceedings by or against a limited partnership may only be instituted by or against any one or more of the general partners and no limited partner may be a party to or named in such proceedings.
The general partners of every limited partnership must keep accounting records which are sufficient to show and explain their transactions in respect of the limited partnership and are such as to disclose with reasonable accuracy at any time the financial position of the limited partnership.
Unless the partnership agreement otherwise provides, it is not necessary for the general partners of a limited partnership to appoint an auditor to audit their accounts in respect of the limited partnership.
Dissolution of Limited Partnerships
A limited partnership can not be dissolved by an act of the partners until a statement of dissolution signed by one of them has been delivered to the Registrar of Limited Partnerships.
A limited partnership must be dissolved if there are no general partners, but if the limited partners elect one or more general partners, then its activities may be taken over and continued as provided for in the partnership agreement or a subsequent agreement.
The Court has the power to order the dissolution of a limited partnership if the Court is of the opinion that it is just and equitable that the limited partnership should be dissolved.
In the event of the dissolution of a limited partnership its affairs are wound up by the general partners or, if there are no general partners, in such manner as the Court may direct.
Tax and Other Exemptions
As indicated earlier, a limited partnership is not itself a subject for assessment to any tax in the Federation and the partners of a limited partnership are exempt from all income, capital gains and withholding taxes which may arise out of their interest in the limited partnership if the general partners of the limited partnership are in respect of it effecting transactions exclusively with persons who are not resident in the Federation.
A limited partnership is called an exempt limited partnership if its partners qualify for the tax exemption mentioned above. An ordinary limited partnership is a limited partnership which is not an exempt limited partnership.
No estate, inheritance, succession or gift tax, rate, duty, levy or other charge is payable by any person with regard to any property owned by, or securities issued or created in respect of, an exempt limited partnership. No stamp duties are payable by any person with regard to any transaction in securities issued or created in respect of an exempt limited partnership.