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Limited Partnership Act

Eddie Chan/Jacob Chan

The Limited Partnership Act was enacted and promulgated by the Presidential on 24 June 2015, and the enforcement date thereof shall be determined by the Executive Yuan.
Before the Limited Partnership Act is enacted, all partners shall enjoy the rights and assume the obligations jointly in the absence of a juridical person, which leads to difficulties in conducting business, i.e., the property of the partnership shall be registered in all the partners' names. Furthermore, when the property of the partnership is not sufficient to pay off the debts, the partners shall bear unlimited joint liability for such debts, which is too risky for a partner not actually participating in the operation of the business. Thus, investors will be less willing to do business in the form of a partnership.  Limited Partnership Act was therefore enacted for a more flexible form of entrepreneurship to satisfy the need of the market and promote the development of the cultural and creative industries and new ventures, by creating a juridical person i.e., a limited partnership and providing different authority to investors and operators,
1.      Definition:
According to Article 4, the term "limited partnership" as used in this Act denotes a corporate juristic person organized and incorporated for the purpose of profit making.
2.     Formation:
(1)   According to Article 6, a limited partnership is organized by at least one general partner with unlimited liability who bears unlimited joint liability for the obligations of the limited partnership, and at least one limited partner with limited liability who is held liable for the obligations of the limited partnership only in respect of the amount of capital contributed by him.
(2)   According to Article 8, a company may be a partner of a limited partnership, and not be subject to Articles 13(1) of the Company Act. However, when a company becomes a general partner of a limited partnership, the company shall obtain the consent of its shareholders or a resolution adopted by its shareholders' meeting.
3.      Registration:
According to paragraph 1 of Article, unless registered with the central competent authority, no one may conduct business or juridical acts in the name of a limited partnership[1]. Otherwise, according to Article 39, the person shall take civil and criminal responsibility for the violation.
4.      Form of contribution:
(1)   According to Article 14, a general partner may contribute his capital in the form of cash, other property, goodwill, service or other interests, and a limited partner may contribute his capital in the form of cash or other property. This Article gives general partners more flexibility to determine the form of contribution. However, if the amount of equity capital or the number of partners exceeds a certain amount as specified by the central competent authority, the limited partnership shall have its capital audited by an independent certified public accountant.
(2)   In addition, Article 9 legalizes the provision of contribution paid in installments, which is often provided in a partnership agreement in practice, avoiding violating Article 38, i.e., contributions have not been actually paid up by partners, and taking the criminal responsibility.
5.      General Partner and Limited Partner:
(1)   According to Article 4, a general partner is the responsible person of a limited partnership. The managerial officer or liquidator of a limited partnership acting within the scope of his/her duties is also responsible person. A responsible person has a fiduciary duty to a limited partnership. According to Article 23, if the responsible person operates a business, violating any provision of any laws or regulations which causes damage to any other person, he/she shall be liable, jointly and severally, for the damage.
(2)   According to Article 20, unless otherwise provided in the partnership agreement, a representative shall be elected by at least one-half of the general partners.
(3) According to Article 21, general partners are responsible for conducting the business.Any business conducted shall require over one-half of all the general partners' consent.
(4) According to Article 26, in general, a limited partner shall not conduct business and shall not act as the limited partnership's agent. If a limited partner apparently conducts himself/herself as an agency, such limited partner shall take the same responsibility as a general partner[2].
6.      Allocation of distributions:
       According to Article 28, unless the liabilities that are due have not been paid or the limited property is not sufficient to pay off the liabilities or necessary costs of withdrawal, dissolution or liquidation, distributions of cash or other assets of a limited partnership shall be allocated among the partners, and among classes or groups of partners, in the manner provided in the partnership agreement. If the partnership agreement does not so provide, distributions shall be made on the basis of the agreed value of the contributions made by each partner to the extent they have been received by the limited partnership. Thus, a limited partnership is not restricted as to when it may distribute its profits and the amount of distributions. Furthermore, it would not be necessary to call a board of directors and shareholders' meeting for the distribution of profit. To the extent, a limited partnership may operate more flexible than the stipulations provided under the Company Act.
7.      Participation and Withdrawal:
(1)   According to Article 32, for the stabilization of partnerships, unless otherwise provided in the partnership agreement, no person may be introduced as a general partner in a limited partnership that already exists, except by the unanimous consent of all the partners. Furthermore, a person who becomes a general partner of such a limited partnership is liable in the same way as the other partners for all the obligations prior to his being a general partner.
(2)   A person may withdraw from a partnership by dissolution or assigning partnership interests. Dissolution is classified into compulsory dissolution (Article 33) and voluntary dissolution (Article 34). To protect creditors' rights and maintain the limited partnership's property, according to Articles 18 and 19, unless otherwise provided in the partnership agreement, partners shall not withdraw or redeem any part of their contribution to the partnership, whereas partners may assign their partnership interests in whole or in part in accordance with the partnership agreement or the unanimous consent of all the partners.
8.      Non-competition:
       According to Article 25, unless otherwise provided in the partnership agreement, a responsible person of a limited partnership shall not, for the benefit of his/her /its own or others, engage in the same business as that of the limited partnership. In case a responsible person of a limited partnership violates the provisions of the preceding paragraph, all other partners may, by a majority of vote, consider the earnings in such an act as earnings of the limited partnership unless one year has lapsed since the realization of such earnings.
9.      Financial Statement and Taxation:
1.      According to Article 27, limited partnership shall, at the end of each fiscal year, submit the annual business report, the financial statements, and the surplus earnings distribution or loss make-up proposal to its partners for their approval (two thirds or more). Where the amount of equity capital of a limited partnership exceeds a certain amount as specified by the central competent authority, the limited partnership shall first have its financial statements audited and certified by a certified public accountant pursuant to the auditing and certification rules as prescribed by the central competent authority.
2.      The Limited Partnership Act does not deal with the taxation of a limited partnership. The competent authority has stipulated that a limited partnership shall be taxed at the rate of 17, which is the same as any profit-seeking companies. In respect of taxation vis-à-vis a limited partnership, the competent authority is contemplating discussing with the Ministry of Finance certain benefits to be included in the Statute for Industrial Innovation in the future.

[1]   Besides, according to the paragraph 2 of this Article, after its incorporation, the failure to register any particular that should have been registered or the failure to register any changes in particulars already registered, such particulars or changes in particulars cannot be set up as a defense against any third party.
[2]   In the past, investors are often trying to interfere in the decision making process by the Venture Fund. However, Article 26 provides that if investors participated in the operation of the limited partnership, then they should bear the same liabilities as the general partners. As such, the investors would be less inclined to participate in the operation of the Venture Fund, which will have the effect of providing the professional managers more space to put his business strategy into practice, and in turn increase people's willing to invest in the Venture Fund.