Today we are going to examine the New Zealand Limited Partnership (LP) and the New Zealand Look Through Company (LTC), both of which are particularly distinguished due to their flow through tax status.
1. New Zealand Limited Partnership
The New Zealand LP is a partnership structure similar to those established in overseas jurisdictions and can be used for a variety of purposes such as holding and trading assets worldwide. They enjoy separate legal ownership from their owners, who are referred to as partners.Limited Partnership Partners
LPs must have at least one general partner and one limited partner (who cannot be one and the same). The general partner is responsible for the day-to-day management of the LP.
A Limited Partner is typically a passive investor who makes a capital contribution to the partnership and is the beneficiary of the partnership, being entitled to any income/losses from the partnership. There can be more than one limited partner.
The Limited Partner is unable to participate in the day-to-day management of the LP. However, they can participate in a number of “safe harbour” activities as prescribed by legislation.
Limited Partnership Formation
LPs are formed by the partners entering into a partnership agreement and registering with the New Zealand Companies Office. The Companies Office maintains a Register of Limited Partnerships which is separate from the Register of Companies.
LPs are readily distinguished from standard New Zealand companies; the words “Limited Partnership” or the abbreviation “LP” or “L.P.” must be included at the end of the name.
Limited Partnership - Limited Liability
Once formed, an LP is a separate legal entity from its owners and limited partners have limited liability in relation to any debts or liabilities incurred by the partnership. While the general partner is liable for debts and liabilities, this risk is constrained when the general partner is a limited liability company.
Limited Partnership Taxation
LPs are treated as “flow-through” for income purposes. All income or losses are directly attributed to the partners, generally pro rata to their capital contributions. Where expenditure exceeds the attributed income, the partners can offset this loss against income from other sources.
Limited Partnership Duration
An LP can exist indefinitely, and is wound up when it is formally removed from the Register. It can also be wound up after a specified date or on the occurrence of a certain event in accordance with the terms of the partnership agreement.
2. New Zealand Look-Through CompanyThe LTC is a standard limited liability company in all aspects, except that it is treated as “flow-through” for income tax purposes, in the same way as an LP.
Look-Through Company Requirements
The requirements for LTCs are as follows:
Look-Through Company Taxation
- LTCs must be registered in New Zealand for tax purposes;
- Shares can only be owned by natural persons, trustees, or another LTC;
- Shares must be of the same class and give equal rights to all of the shareholders; and
- There must not be more than 5 shareholders, although there are exceptions for related shareholders (who may be counted as 1 shareholder).
Income and losses derived from the LTC are passed through to the shareholders pro rata to their shareholding in the company.
Where the shareholder is not resident in New Zealand and income from the LTC is not derived from business in New Zealand, the shareholder will not be subject to tax in New Zealand but in the jurisdiction where they are resident for tax purposes.