A limited partnership (Polish: “spółka komandytowa” or “sp. k.”) is a partnership in which at least one partner has unlimited liability towards the partnership's creditors (general partner) and at least one partner has limited liability (limited partner).
What are the main differences between partners?
The general partner's liability is unlimited, joint and several with other partners and the partnership itself. The surname (in the case of a individuals) or a business name (in case of a company) of the general partner is included in the business name of the limited partnership. Also, the general partner represents the partnership.
The limited partner's liability is also joint and several with the other partners and the partnership itself, yet it is limited to a sum declared freely in a deed of a limited partnership. The surname or business name of a limited partner is not included in the business name of the partnership. A limited partner may represent the partnership only as an attorney or a proxy.
What about profit distribution?
Since partners enjoy a fair degree of discretion when setting rules on shares in profits and participation in losses, a limited partner may profit both from favorable profit – loss clauses and limited liability provisions. In spite of this triggering other obligations, like a duty to evidence transfer pricing, establishing a strong position of a limited partner is very manageable.
What about taxes?
A limited partnership itself is not subject to income taxes. All partners are subject to their income tax only – personal for individuals (PIT) or corporate for companies (CIT). Income is proportional to partner's share in profits. An individual may be taxed on general terms (18% / 32% rate) or choose flat tax rate (19%). Corporate income tax rate amounts to 19%.
As a limited partnership is not subject to CIT it is more tax efficient than the LTD (Polish: “sp. z o.o.”) or the PLC (Polish: “Spółka Akcyjna” or “S.A.”) where shareholders' true profit is in fact subject to double taxation – firstly as a company's income and secondly as a dividend.
A limited partnership is also obliged to pay tax in the form of value added tax (VAT), excise and real estate tax.
Are there more benefits to a limited partnership?
A limited partnership suits high profitability businesses with moderate personal risk expected, namely, services. Also, the partnership may be successfully used as a capital group member tied with other companies, both Polish and foreign. Among others, most popular are limited partnerships with LTDs as general partners that further limit the risk of business activity. However, such solutions should always be examined individually and constructed carefully in compliance with Polish and international law.
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Author: Michał Kłodawski