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When is a limited partner’s liability potentially unlimited? One answer may be: whenever the limited partnership operates outside its jurisdiction of formation – unless care is taken at the time of its formation.
Limited partnerships are established in many jurisdictions, often for the purpose of investing or carrying on business in another jurisdiction. The essence of a limited partnership is that the liability of the limited partners is limited to the amount that those partners have contributed or agreed to contribute.
What many limited partners do not realise is that the limitation of liability afforded them pursuant to the laws of the jurisdiction under which the limited partnership was formed (the “Formation Jurisdiction”) may not be given effect under the laws of other jurisdictions in which the partnership may do business (the “Trading Jurisdiction”). Nor are many involved in setting up the structures aware that Bermuda limited partnerships offer a simple way of obtaining limited liability in foreign jurisdictions.
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Bermuda Limited Partnerships – Preserving Limited Liability