The Limited Partnership Act was passed by the Legislative Yuan on June 5, 2015. This marks an important milestone in the types of business entities available under Taiwan law. The Act introduces a new business entity,the Limited Partnership, in addition to the traditional unlimited company, unlimited company with limited liability shareholders, limited company, corporation, sole proprietorship, and partnership, as provided by the Company Act and under the Civil Code.
A limited partnership is composed of at least 1 general partner and at least 1 limited partner. The general partner is responsible for the operation of the limited partnership and is jointly and severally liable for partnership debts when the partnership’s assets are insufficient to repay partnership debts. The limited partner cannot participate in the operation of the partnership, but is liable for partnership debts up to the amount of the limited partner’s contribution.
The limited partnership has been in operation for many years in other jurisdictions. The enactment of the Limited Partnership Act is intended to provide integration with the international business community and to introduce a more flexible business entity. A limited partnership has several characteristics: it is an entity emphasizing on collection of individuals; it is a distinct legal entity separated from its partners; it focuses on arrangements among the partners and allows parnters the flexibility to overwrite default rules with their partnership agreement. In comparison to the traditional corporation, the limited partnership’s advantages include flexibility in, among other things, the types of capital contribution allowed, voting rights arrangement, and profit distribution, making the limited partnership suitable for entrepreneurs in start up situations.
Among the advantages, flexibility in the types of capital contribution allowed and in voting rights arrangements are two important departures from the traditional Company Act provisions. Not only can cash and other property be contributed, credit, service, and other considerations are also allowed. This allows entrepreneurs with innovative ideas and technologies but who lacks capital to participate in a limited partnership by contributing non-property contributions. In addition, the flexible voting right arrangement can prevent management from losing control subsequent to raising new capital that dilutes management shareholding.
However, the Limited Partnership Act does not specify the taxation scheme applicable to the limited parnterhsip. News articles had reported that the Ministry considers limited partnership as a separate legal entity, and thus is leaning toward requiring the limited partnership to pay the 17% corporate income tax. The Ministry of Finance itself has yet to respond clearly on the tax scheme applicable to the limited partnership. As investors’ willingness to utilize the limited partnership may depend in large part on the Ministry’s plan for taxing limited partnerships, new development shall be watched closely.