Liabilities and rights
Local Mauritian and international businesses now have another choice when selecting the business structure that best suits their needs.
The Mauritius Limited Partnerships Act came into effect on December 15 2011 and introduced a Mauritius legal entity, the limited partnership (LP). The LP structure has many advantages. LPs that have a legal personality are legal persons distinct from their members. This means that they can enter into contracts, own property and sue and be sued in their own names, making them much more flexible than a company structure. The structure of a company requires matters to be laid down by statute, whereas the constitution and governance of an LP are set out in the partnership agreement. This flexibility means that the LP partners are free to choose the structure which works best for them.
The act largely follows the principles of English law, preserving the common law provisions that relate to partnership, except to the extent that a contrary intention is agreed, expressly or implied between the parties. The act does not attempt to regulate the affairs of a partnership, leaving this to be agreed between the partners. However, to the extent that the partnership agreement does not contain provisions concerning the relation between the partners and persons dealing with them, the provisions of the act will apply accordingly.
Partnerships which are set up under the act are limited partnerships which, unless otherwise specified in the partnership agreement, shall have a continuous and successive existence through their present and future partners until dissolution. For LPs which meet the conditions laid down in the act, including having at least one general partner, the limited partners will normally have limited liability for the partnership's debts and obligations – provided that they take no part in the management of the partnership.
A Mauritius partnership may elect to have a legal personality under Section 11 of the act. A partnership with a legal personality is a legal person that is separate from its partners and has the power to own and deal with its separate property in accordance with the agreement of its partners.
LPs have unlimited capacity, thus removing ultra vires concerns. Subject to Section 11 of the act:
- the acts of a general partner in connection with the business of the LP shall bind the LP in all respects;
- every general partner shall be jointly and severally liable with the other general partners for all debts and obligations of the LP that are incurred while it is a general partner; and
- an LP may indemnify any partner or other person from and against all or any claims, demands and debts, unless otherwise provided in the partnership agreement.
The ability of an LP to hold property in its own name (rather than in the name of its individual partners) is a particular advantage over certain holding structures.
The act provides that an LP shall consist of:
- one or more general partners who:
- are admitted to the LP as general partners in accordance with the partnership agreement; and
- are jointly and severally liable for all debts of the LP without limitation; and
- one or more limited partners who:
- are admitted to the LP as limited partners in accordance with the partnership agreement;
- upon entering the LP, make or agree to make capital contributions to the LP; and
- subject to the act and the partnership agreement, are not liable for any debts of the LP beyond the amount contributed or agreed to be contributed to the LP.
A limited partner shall not participate in the conduct or management of the LP's business and shall not transact the business of, sign or execute documents for or otherwise bind the LP. If a limited partner acts contrary to this provision, it may be liable as if it were a general partner in respect of all of the LP's debts. The act provides that a person may simultaneously be a general partner and a limited partner in the same LP. In this respect, a partner who is both a general and a limited partner in the same partnership has all the rights, powers and restrictions of a general partner, except that in respect to its contribution as a limited partner, it shall have the same rights of a limited partner against the other partners.
When a partnership makes an election to have legal personality, it does not fundamentally affect the relationship between its partners, which remains governed by the provisions of the partnership agreement and, where the agreement is silent, by the act. However, the ability of a partnership to exist as a separate legal entity facilitates the continuity of contractual relationships with third parties and makes it easier to tie in new partners to existing contractual relationships. For example, Section 13 of the act provides that a partnership agreement shall be binding upon the partners and their assignees, and upon subsequent partners, in the same manner as if those persons had themselves executed it.
The act further provides that a partnership agreement may, to the extent specified in such agreement, provide rights to any person, including a person who is not a party to the partnership agreement (eg, a third-party lender). It was envisaged that contracts would be drafted so as to give third parties protection via an express right to enforce where this was the parties' intention.
A third party (eg, a lender that is not a party to a partnership agreement) may enforce that clause if either:
- the partnership expressly states that the third party shall have this right of enforcement or purports to protect the third party; or
- on a proper construction of the agreement, there is nothing to indicate that the contracting parties did not intend the term to be enforceable by that third party.
The third party must be expressly identified in the agreement either by name or as a member of a particular class or description (eg, 'lenders'), but need not be in existence at the time in which the agreement was entered into. The act of legally assigning capital contribution or commitment by the funds shall be protected by the act. Section 13 (5) of the act is intended to protect the legal rights of the bona fide third parties and to maintain the solid development of the fund industry in Mauritius.
For further information on this topic please contact Malcolm Moller at Appleby by telephone (+2 30 203 4300), fax (+2 30 210 8792) or email ([email protected]).