LEGAL VIEWPOINT: Features of Simple Limited Partnerships – By Dr. AbdelGadir Warsama Ghalib, LEGAL COUNSEL, Bahrain

ADVERTISEMENT Global Offer 728x90
Dr AbdelGadir Warsama-Ghalin, Legal Counsel

The Commercial Companies Law in many countries, provides for different types of companies to be incorporated therein. The main reason for this variety is, I guess, to give an opportunity to potential interested parties to choose the type of company they are interested to incorporate according to their interest, requirements and needs. The Simple Limited Partnership (SLP) is one of the types of companies enumerated in the law. In Arabic, this type is Called “Al-Tawsieya Al-Basieta”..   The Simple Limited partnership (SLP) is a company to be  formed by one or more general partner(s), and one or more limited partner(s) with the aim of working together on a certain project venture with the aim of making profit.

Asia 728x90

One of the main characteristics and features of this type relates to the different type of partners, herein, there are two categories of partners. There are the “general” partners on one hand and the “limited” partners on the other hand. This categorization of partners is the cornerstone and the main characteristic feature of this type of companies. The two categories of partners mentioned above are very different from each other. They are like two sides of the same coin, in other word, each side represents very different and / or special features. However, the two sides together represent one unit and represent one coin.

Legally speaking, the “general” partner is liable and responsible towards the liabilities (debts) of the company in all his assets. Whereas, on the other hand, the “limited” Partner is only liable and only responsible to the extent of his equity shareholding. This means that, the other personal assets of the limited partner are not at stake because they are severed from his equity shareholding.

This classification means the general partner is more exposed and he should, throughout the tenure of the company, shoulder more responsibility in case the company fails. In other words the general partner in this venture is obliged to shoulder more responsibility.

A valid question arises here, does the “general” partner benefit more than “limited” partner even though they are partners in the same company? As per the provisions of the law, the answer is obviously yes, and this is clear from  certain points including:

-The general partner has the full right to fully manage the affairs of the company. Whereas the limited partner cannot, and has no right to, manage the company. Any act by the limited partner to give third parties dealing with the company, the impression that he\ she assumes managerial power is deemed ultra-vires and out-side the scope of work because he\ she lacks the jurisdiction to manage the company. However, in case the limited partner is doing that persistently, then he\ she will be regarded as a general partner and not a limited partner. If he\ she is taken as general partner the, law requires that he\ she should be dealt with accordingly and he\ she should bear the consequences of his\ her acts in case he\ she assumes the burden of the general partner. The law is very strict in this legal concept and there seems to be no grey area.

-The partners are free to choose the business name for their partnership. However, in case they decide to use their names, the name of the partnership should be composed of and or include the name(s) of one the general partners only. The name(s) of the limited partners cannot be given as they lack such right. This means, if the limited partner gives his\ her name to the partnership, the same rule mentioned above applies and he\ she will be regarded as a general partner.

-The general partners shall always be nationals. However, we have to take in mind that, this requirement is not mandatory in case of limited partners. They could be foreigners, this means this special type of companies could lead to inter-relations and marriage between the local and foreign partnership. The general partners are represented by nationals and the limited partners by foreigners. This mixture and blending of experience could be beneficial and advantageous to the partnership and to the economy in general.

The above distinctions indicate that the general partner has a better position in the partnership due to his full & unlimited exposure in all his assets. Other characteristic features of this type of Commercial companies is that the name of the partnership shall always be followed by the words “Simple Limited Partnership – SLP” or “Al-Tawsieya Al-Basieta”, in Arabic, so as to give third parties dealing with the company and the partners the necessary transparency regarding the formation of the company and the partners.

All decisions related to the affairs of such a company shall always be unanimous. Here in this respect all partners, general or limited, are equal. The Articles of Association of the partnership may provide that certain issues to be adopted by majority and not unanimity. Majority here is by numbers unless the Articles of Association provides otherwise.

The above indicates the main features of this partnership, potential investors are obliged to comprehend and understand the differences provided for by the law. This is required, as the liability varies and based on your choice you are determining your liability..