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Limited Partnership in Hong Kong: Definition, Pros, and Cons

  • Published: 28 February 2024
  • 10 min read
  • Starting a Company
Limited Partnership in Hong Kong: Definition, Pros, and Cons
  • Author Gabi Bellairs-Lombard

    Gabi Bellairs-Lombard

    Business Writer

    Gabi creates content that inspires. She's spent her career writing compelling website copy, and now she specialises in product marketing copy. As the voice of our products and features, Gabi makes complex business finance and accounting topics easy to understand. Her top priority is ensuring that her words impact and inspire her readers.

Are you considering establishing a limited partnership or simply looking to understand how it functions within the context of business structures? A limited partnership is a type of partnership where one or more general partners handle the management and control of the business, while limited partners serve as passive investors and provide financial resources. This structure sets the partners' roles, responsibilities, and liabilities. This article will dive into the complexities of limited partnerships, discuss their benefits and challenges, and examine how they operate in different jurisdictions, including Hong Kong.

Key Takeaways

  • A limited partnership (LP) in Hong Kong is a business structure involving at least one general partner who manages the company and assumes unlimited personal liability and one or more limited partners who provide capital and have liability limited to their investment.
  • Limited partnerships in Hong Kong benefit from pass-through taxation, where profits are not taxed at the entity level but are taxed once at the individual partners’ level, providing tax efficiency and avoiding double taxation faced by corporations.
  • LPs must comply with legal obligations such as registration with the local secretary of state’s office, public disclosure of certain partnership details, and adherence to the local Companies Ordinance to avoid penalties.

What Is a Limited Partnership?

A limited partnership (LP) is a business entity that combines two types of partners: general and limited, each playing a distinct role. It's an alliance between financial power and management prowess.

General partners run the show, managing business operations and making decisions with unlimited liability for the business debts. However, with great power comes great responsibility, as they bear unlimited financial liability for the business.

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What is a limited partnership?

On the other hand, limited partners are silent financial backers and are not personally liable for business debts or other liabilities. They engage in limited partner investment, providing capital but having restricted involvement in management, and their financial liability is capped at the amount they invest.

A limited liability company (LLC), however, is different. While it also offers certain liability protections to its owners, it is considered a separate legal entity and has more flexibility in its management. A partnership does not have a separate legal personality so the partners are jointly and individually liable for the debts of the business. This is often the dealbreaker for entrepreneurs deciding on a business structure, but luckily incorporation experts like the ones at Osome will guide you in making the right choice.

What's great about a limited partnership is its unique blend of skills and funds, making it a go-to kind of business entity for industries like private equity, venture capital, hedge funds, and real estate.

Understanding the Structure of a Limited Partnership

The unique structure forms the core of a limited partnership. An LP is defined by the contrasting roles of general and limited partners, with each group offering unique value to the partnership. The transition from a general to a limited partnership status happens upon registration, with liabilities aligning according to the terms in the Partnership Agreement.

The role of general partners in management

In a limited partnership, general partners take the helm. They hold the reins of management, making all important decisions. This could range from day-to-day operations to long-term strategic business plans. However, with this central role comes significant responsibility and risk.

General partners bear personal liability for the company’s financial obligations, which include any debts and legal claims. They are also personally liable for the conduct and management of other partners within the partnership.

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The investment role of limited partners

Conversely, limited partners invest in the business and serve as the engine’s fuel. They inject capital into the business, and their liability is solely limited to their investment amounts. However, the trade-off for their limited liability is that limited partners do not get to participate in daily operations or business decision-making. Limited partners invest in the company but have little to no control in its management.

This protection from liability for limited partners is contingent upon their non-involvement in management decisions.

Crafting a solid partnership agreement

Guidance for the limited partnership comes from the partnership agreement. It outlines the rights, responsibilities, expectations of each partner, and partnership obligations and specifies:

  • How profits will be shared
  • How stakes will be sold
  • The responsibilities and rights of both general and limited partners
  • Ownership percentage and how contributions will affect ownership percentages
  • How profits and losses are shared

This agreement is critical in defining the terms and conditions of the partnership.

It also sets terms for the partnership’s duration, dissolution procedures, and parameters defining partner authority. It must also include provisions for the departure of a limited partner due to death or withdrawal.

Tax Implications for Limited Partnerships

Taxation, a key feature, distinguishes LPs from other company structure. As pass-through entities, limited partnerships themselves are not taxed at the federal level. Instead, partners report their share of profits or losses on their individual tax returns.

This means the partnership can take advantage of tax deductions and credits for business expenses such as rent, utilities, and salaries, which decrease the taxable income distributed to partners and help manage business debts.

Tax implications for LPs

Avoidance of Double Taxation

This pass-through taxation model of LP companies is advantageous as it avoids double taxation, a challenge that corporations typically face. In a corporation, income is taxed at the corporate level and again when distributed as dividends to shareholders. But for LPs, profits are only taxed once at the individual partners’ level, making them attractive to investors and subsequently enhancing capital-raising efforts.

Self-employment taxes and general partners

However, the tax implications for general partners are different. Since they actively manage the business, general partners must pay self-employment taxes. They must report their share of the partnership’s income and any guaranteed payments they receive, which are subject to self-employment taxes.

Limited Partnership vs Other Business Entities

Considering the range of business structures, how does a limited partnership compare? Given the range of business structures available, it's a valid question, from general partnerships to limited liability companies (LLCs) and limited liability partnerships (LLPs).

General partnership: sharing profits and liabilities

A general partnership is a more traditional business model where all partners share profits, pay taxes and managerial responsibilities equally. However, this equality comes with a hefty price. All the partners in a general partnership bear unlimited personal liability for the business’s debts and actions, which puts their personal assets at risk.

Limited partnership vs general partnership

Limited liability company: a separate legal entity

A limited liability company (LLC), on the other hand, offers a shield against this risk. Recognised as a separate legal entity, an LLC safeguards members’ personal assets from the company’s debts and obligations.

In contrast to a general partnership, members of an LLC are not personally responsible for the company’s actions or debts.

Limited liability partnership: collective management control

Limited liability partnerships (LLPs) offer a slightly different model. All limited partners have restricted liability, protecting their personal assets against the partnership’s debts and obligations. Yet, unlike LP structures, partners in an LLP can participate in managing the partnership.

How To Set Up a Limited Partnership

If you’ve decided that a limited partnership suits your business venture, what’s next? Setting up a Hong Kong limited partnership involves several steps, starting with registering the business with the relevant state authority. This is followed by obtaining a valid Business Registration Certificate, which must be displayed at the place of business.

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The Strategic Use of Limited Partnerships in Business Growth

Limited partnership companies extend beyond merely structuring a business — they can also be a strategic tool for business growth. By combining business skills and funds, limited partnerships can drive business growth more smoothly than sole proprietorships.

Raising capital with limited partnerships

Raising capital with limited partnerships

Limited partnerships are particularly effective in raising capital. LPs can facilitate moderate business growth by allowing general partners to retain full control while raising funds. This makes partnerships attractive to potential investors, who can enjoy financial returns without the burden of active management or significant liability risk.

Balancing control and investor involvement

Balancing control and investor involvement

The success of a limited partnership also lies in the balance between control and investor involvement. While general partners maintain full control over business decisions, partners focus solely on their investments. This unique structure allows for the replacement of partners without dissolving the business entity, which appeals to growth-focused investors.

Legal obligations and compliance requirements bind limited partnerships, as they do for all business entities. These include complying with state law, registering the partnership, and maintaining accurate records.

Registration and public disclosure

Registration and public disclosure

To establish a limited partnership, the business must register with the local secretary of state’s office in the applicable state. This registration process is necessary for legal recognition and compliance. This registration process involves filing a Certificate of Limited Partnership, which includes the name and address of the general partner, which are public information.

Maintaining compliance in business practices

Maintaining compliance in business practices

In addition to company registration, LPs must comply with various provisions of the local Companies Ordinance, which mandates the timely disclosure and reporting of specific information. Failure to comply can result in prosecution and fines for both the partnership and its responsible persons.

The Pros and Cons of Choosing a Limited Partnership

Like a coin, a limited partnership has two sides. On one hand, they offer a structured approach to growth, making it easier to raise capital compared to sole proprietorships. On the other hand, the formation process is quite complicated.

Limited partnership: pros and cons


The advantages of limited partnerships are particularly obvious when it comes to safeguarding investments. Limited partnerships protect the personal assets of limited partners, offering a shield against the company’s liabilities. This makes them attractive to passive investors, who can invest without worrying about significant liability.


However, LPs are not without their challenges. The complexity of forming and operating a limited partnership can be a significant hurdle, in addition to the full liability assumed by general partners.

Limited partners who take an active role in management can lose their personal liability protection, which is a significant risk.

Why You Should Establish a Limited Partnership in Hong Kong

LP's benefits extend beyond the United States and other relevant global economies. In Hong Kong, the Limited Partnership Fund Ordinance was introduced on August 31, 2020, to attract private investment funds.

Hong Kong’s tax regime and limited partnerships

In the context of taxation, limited partnerships in Hong Kong have the following benefits:

  • They are treated as separate legal entities
  • Each partner’s tax responsibilities are calculated individually based on their profit-sharing ratio
  • This makes the partnerships especially tax-efficient for business arrangements in Hong Kong

Establishing a limited partnership fund in Hong Kong

Establishing a Limited Partnership Fund (LPF) in Hong Kong requires the following:

  • At least one general partner
  • At least one partner
  • Appointing an Investment Manager
  • Appointing a Responsible Person.

The LPF regime in Hong Kong is overseen by a registration scheme administered by the Companies Registry.


In conclusion, a limited partnership is a flexible, attractive business model that combines the organisational skills of general partners with the financial power of limited partners. From driving business growth to offering protection against liability, limited partnerships can be a strategic tool for entrepreneurs and investors. However, they also come with their own set of challenges, including complexity and unlimited liability for general partners. Thus, it’s crucial to understand the ins and outs of a limited partnership before embarking on this business journey.

Author Gabi Bellairs-Lombard
Gabi Bellairs-LombardBusiness Writer

Gabi creates content that inspires. She's spent her career writing compelling website copy, and now she specialises in product marketing copy. As the voice of our products and features, Gabi makes complex business finance and accounting topics easy to understand. Her top priority is ensuring that her words impact and inspire her readers.

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  • What is meant by limited partnership?

    A limited partnership consists of a general partner with unlimited liability and business responsibilities and one or more limited partners with restricted liability and no management role.

  • What is the difference between LLP and LP?

    The main difference between LLP and LP lies in the level of management participation allowed for limited partners, making these partnerships ideal for professionals in the same field, like law or accounting. Therefore, the key distinction is the ability of limited partners to engage in business.

  • What is an example of a limited partnership?

    Limited partnerships can be seen in various business ventures, such as private equity firms, venture capital funds, hedge funds, real estate projects, and natural resource exploration projects. For instance, private equity and venture capital firms often structure their investment funds as LPs.

  • How is a limited partnership taxed?

    Limited partnerships are taxed as pass-through entities, with business profits and losses passing through to the partners' personal income tax returns.

  • How does a limited partnership compare to a limited liability company (LLC)?

    An LLC provides limited liability protection to all members and allows for an unlimited number of members with shared management responsibilities, unlike a limited partnership.

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