O'Connor Damien: Limited Partnerships Bill — First Reading 
O'Connor Damien: Limited Partnerships Bill — First Reading 
[Volume:641;Page:11310] 
Hon DAMIEN O'CONNOR (Minister of Corrections) 
 on behalf of the 
 Minister of Commerce 
: 
 I move  
That the Limited Partnerships Bill be now read a first time. 
 At the appropriate time I intend to move that the bill be considered by the Commerce Committee that the committee report finally to the House on or before 3 December 2007 and that the committee have authority to meet at any time while the House is sitting except during oral questions and during any evening on a day on which there has been a sitting of the House and on a Friday in a week in which there has been a sitting of the House despite Standing Orders 192 and 195(1)(b) and (c). 
The bill establishes a new legal form of limited partnership in New Zealand. Limited partnerships are an internationally preferred means for investing in venture capital. The Government is committed to establishing a regulatory environment that encourages innovation with the consequent development and growth of business. An important part of achieving that goal is to establish a regulatory framework that facilitates the ability of New Zealand businesses to attract venture capital. Venture capital provides a valuable source of funding for new companies and companies that are looking to expand. It can also provide access to new expertise and contacts which can help to develop growth strategies and facilitate access to markets. Attracting venture capital plays a key role in growing globally competitive firms which is one of the Government’s five economic transformation objectives. 
Practical experience in New Zealand and Australia has indicated that the absence of a internationally recognised legal and taxation structure is an impediment to foreign venture capital investment. Of course New Zealand is also disadvantaged through its small size and relative distance from larger capital markets. As a result having an internationally recognised structure that provides liability protection for investors and having the appropriate form of taxation treatment to encourage that investment are vital to facilitating foreign venture capital investment and growing New Zealand’s domestic venture capital industry. New Zealand currently has a form of limited partnership called the special partnership under Part II of the Partnership Act 1908. 
Simon Power 
: It needs updating. 
Hon DAMIEN O'CONNOR 
: As the date of the legislation may suggest it is outdated and does not have all the features that venture capitalists prefer. 
The bill aims to provide an internationally recognised structure and to give New Zealand a regulatory framework that is consistent with international norms meaning that it will be recognised and accepted by investors both in New Zealand and internationally. The particular features that international investors expect to find in a limited partnership vehicle are firstly limited partnerships having a separate legal personality; secondly general partners being liable for all of the debts and liabilities of the partnership and limited partners’ liability being limited to the amount of their contribution to the partnership; thirdly limited partners being able to undertake certain activities commonly referred to as safe harbours that allow them to have a say in how the partnership is run without being deemed to participate in the management of the partnership and consequently losing their limited liability; and lastly flow-through tax status— 
Simon Power 
: What does that mean? 
Hon DAMIEN O'CONNOR 
:—which means that the partnership itself is not taxed I say to Mr Power but that each part is taxed individually at the partners’ personal tax rate. The bill includes those features and as with the overseas limited partnership legislation is designed to create a flexible business structure that encourages investment. 
A key consideration for potential investors when deciding whether to invest is their exposure to liability. Consistent with international best practice the bill provides that limited partners are liable only to the extent of their contribution to the limited partnership but with one exception: if a limited partner participates in the management of the limited partnership and holds itself out to be a general partner it will be held liable just like a general partner would be. The power to set out safe harbours in regulations in the bill is therefore important in order to provide investors with certainty about the activities that they may be involved in without running the risk of losing their limited liability. Regulations setting out those safe harbours will be developed while the bill is in the House. 
Investors also need to know the circumstances in which they can withdraw from a limited partnership. The bill establishes clear rules around the withdrawal of capital and profits from the limited partnership which also aim to protect the rights of creditors. In particular the bill establishes a solvency test similar to that applying to companies which much be satisfied if the partnership is able to make distributions to partners or if a partner wishes to withdraw its capital. 
Rules around the termination of limited partnerships are also very important. The bill establishes an efficient process by which limited partnerships may be liquidated in a similar way to a company. That process plays an important part in protecting the interests of creditors of the limited partnership. 
The bill establishes registers of New Zealand limited partnerships and overseas limited partnerships carrying on business in New Zealand. Those registers will be maintained by the Registrar of Companies. Having a register of limited partnerships will help to provide certainty to third parties that wish to transact with a limited partnership. In particular it means that third parties will know that the entities they are dealing with are properly constituted limited partnerships. Having a register of limited partnerships will also assist in ensuring the effective enforcement of the legislation. 
Because venture capital often operates internationally any limited partnership structure needs to be recognised by legal systems in other jurisdictions. The bill provides a separate legal personality for limited partnerships for that particular reason. In the absence of a separate legal personality there is a risk that the rules around the liability of general and limited partners may not be recognised in a foreign court. 
Taxation treatment is also a particularly vital issue in encouraging local investment in limited partnerships and ensuring that limited partnerships are recognised by international investors. As a result the bill provides for flow-through taxation treatment. Flow-through taxation treatment is a key element of the limited partnership structure internationally and as with the rules governing the liability of general and special partners it needs to be recognised by foreign courts if a limited partnership is going to operate in other jurisdictions. 
It is also important to note that although limited partnerships are focused on developing the local venture capital industry and attracting venture capital investment they may also be used by the broader commercial community as a flexible business structure that has low compliance costs associated with it. The bill places few restrictions on the activities that may be performed by a limited partnership. 
Finally the bill also contains provisions to clarify and simplify the taxation law that applies to partnerships more generally which the Minister of Revenue will address in more detail. 
To conclude the bill establishes a flexible and an internationally recognised structure for encouraging investment. It represents an important contribution to facilitating investment in New Zealand and access to capital by New Zealand companies. I commend the bill to the House.