Mallard Trevor: Limited Partnerships Bill — Second Reading 
Mallard Trevor: Limited Partnerships Bill — Second Reading 
[Volume:645;Page:14639] 
Hon TREVOR MALLARD (Acting Minister of Commerce) 
: 
 I move  
That the Limited Partnerships Bill be now read a second time 
. This bill was considered by the Commerce Committee. The objectives of the bill are to facilitate the development of a local capital investment industry and to encourage foreign venture capital investment. The bill aims to do this by establishing in New Zealand the legal form of limited partnership which is an internationally preferred structure for investing in venture capital. The value of venture capital is clear: venture capital plays an important role in helping innovative and developing businesses to grow. It is an important source of funding for new businesses and early stage expansion and it can sometimes assist growing firms by providing access to new contacts and new managerial and technical expertise. Since the first reading the Commerce Committee has recommended a number of amendments to strengthen the bill which will help it achieve its objectives. 
I will start by discussing some of the more important changes recommended by the committee to Parts 1 to 4 of the bill which establish the legal form of limited partnership. One of the most important of these recommended changes is the inclusion of safe harbours in the bill rather than in regulations. Safe harbours are those activities a limited partner may participate in without being held to have participated in the management of the limited partnership and potentially losing limited liability. The safe harbours recommended by the committee are based on international best practice and cover such matters as involvement in strategic decision-making contract work and the provision of consultation or advice to the limited partnership. These safe harbours provide the sort of clarity certainty and consistency with international approaches that are needed to encourage investment in limited partnerships. 
Another important amendment to the bill as recommended by the committee is the requirement that details of limited partners provided to the registrar are kept confidential. Two competing factors need to be balanced when considering this. One is the principle of transparency and the other is the fact that the anecdotal evidence of having limited partner details available on a public register shows that it may discourage some venture capital investors from putting money into New Zealand limited partnerships—and of course these people have a lot of choice. Limited partner details are not publicly available in some other jurisdictions and the committee has decided that the details on limited partners on the register should be kept confidential. I consider that this is a sound approach which also needs to be seen in light of the objectives of the bill in its broader context. A key objective of the bill is to attract venture capital investment. The international market for venture capital is highly competitive and we do not want to disadvantage our market. 
The committee has also proposed some changes to provide more flexibility in the operation of limited partnerships—in particular that the earlier prohibition on limited partnerships being involved in banking and insurance business can be removed because the generic legislation rules applying in those areas will address governance risk associated with limited partnerships in those areas. Limited partnerships will also be able to apply to the registrar to be deregistered on broadly the same basis as a company. This will ensure that a limited partnership that has ceased operating and has paid its debts can deregister in a simple and cost-effective way without needing to have a liquidator. 
Several other amendments recommended by the committee will help ensure good governance. In particular an obligation has been added to the bill for limited partnerships to prepare financial statements. This will encourage appropriate transparency in relation to the limited partners and to third parties dealing with those partnerships. Partnership agreements must also contain certain specified matters including the entitlement of partners to distributions the times when meetings must be held the ways in which meetings are to be conducted and the manner in which partners may enter or leave a partnership. This is an important measure to ensure the quality of partnership agreements. 
The select committee has recommended three other noteworthy amendments to Parts 1 to 4 of the bill and I will draw these to the attention of the House. Firstly limited partnerships may use the new voluntary administration provisions that came into force last year. Secondly third parties can be protected by applying Companies Act rules around the validity of actions taken by limited partnerships which means that third parties will be able to transact with a limited partnership without having to go behind the transaction to check whether for example the general partner they have been dealing with has been properly appointed. Thirdly with the leave of the court partners will have the power to bring derivative actions on behalf of the limited partnership. This is consistent with the approach taken in several other jurisdictions. 
I will now say a few words about Parts 5 and 6 which contain the new tax rules for limited partnerships and update the tax rules for general partnerships. Under the bill limited partnerships will receive flow-through tax status which means they will be taxed in the same way as general partnerships with partners being taxed individually in proportion to their personal share of the partnership income. 
Limited partners will be subject to new tax loss limitation rules to ensure that the losses they claim reflect the level of their economic loss. The Commerce Committee also recommended a number of technical amendments to the bill that will be useful and make tax rules easier. 
In summing up I am confident that the amendments made both to the regulatory and tax provisions of the bill will help it achieve its twin objectives of facilitating the development of the local venture capital industry and encouraging foreign venture capital investment. I thank the members of the Commerce Committee and the officials from both the Ministry of Economic Development and the Inland Revenue Department for their work on the bill and I acknowledge the contributions of those who provided submissions on it. As someone acting for the Minister and as I was personally quite involved in the venture capital industry through my Ministry of Economic Development responsibilities for a period of time I would like to say that this is a complex area. It is a very very important area for New Zealand and I think the Minister of Commerce has handled it very well. Thank you.