A limited partnership is a partnership registered at Companies House under the Limited Partnerships Act 1907 with at least one general partner, who runs the business and has unlimited liability, and at least one limited partner, whose liability is capped but who must stay out of management. A private fund limited partnership is a variant for investment funds that relaxes the capital and management rules for limited partners.

What is a limited partnership and which law applies?

Section 4(2) of the 1907 Act requires one or more general partners, liable for all the debts and obligations of the firm, and one or more limited partners. Section 7 applies the Partnership Act 1890 and the general law of partnership except where the 1907 Act provides otherwise, so a limited partnership is still a partnership, not a company. Outside Scotland it has no legal personality of its own. A Scottish limited partnership does, as explained at Scottish partnerships and legal personality.

Companies House guidance says an individual or a legal body such as a company can be either a general or a limited partner, but not both at once. HMRC’s Partnership Manual (PM131310) summarises the deal: the limited partner limits liability to a predetermined sum, the general partner manages and bears unlimited liability to creditors. The government’s reform factsheet says limited partnerships were traditionally used for Scottish agricultural tenancies and are now often used as investment vehicles. The structure differs from an LLP, where every member has limited liability and may manage.

How is a limited partnership registered?

Section 5 says every limited partnership must be registered under the Act. Companies House guidance explains that you send form LP5 (LP5(s) in Scotland) signed by all the partners, and the partnership comes into existence when an acceptable form is registered. The form gives:

  • the firm name, ending “Limited Partnership” or “LP”;
  • the general nature of the business;
  • the principal place of business;
  • the full name of each partner, with general and limited partners listed separately;
  • any fixed term;
  • the sum contributed by each limited partner and whether it is paid in cash or otherwise.

The registration fee is £124. Until registration, Companies House says, all partners are equally responsible for debts and obligations. Changes to registered details must be notified on form LP6 within seven days under section 9. Fuller registration requirements under the Economic Crime and Corporate Transparency Act 2023 are covered in limited partnership reforms.

What do general partners do?

General partners manage the business and are personally liable without limit for the firm’s debts. Section 6(5)(a) lets ordinary business differences be decided by a majority of the general partners, subject to the agreement. Companies House guidance makes general partners responsible for sending the statutory forms even where preparation is delegated, and, when the partnership is dissolved, for winding up its affairs unless the court orders otherwise.

A general partner can itself be a limited company. The company is then fully liable for the firm’s debts, while the people behind it rely on the company’s own limited liability.

How does a limited partner keep limited liability?

Three rules protect, and can remove, the cap:

  1. Contribution. Outside a private fund, a limited partner must contribute capital or property of a stated amount on entering the partnership and is not liable beyond it (section 4(2A)).
  2. No withdrawal. If a limited partner draws out or receives back any part of that contribution while the partnership continues, they become liable for the firm’s debts up to the amount withdrawn (section 4(3)).
  3. No management. Under section 6(1) a limited partner must not take part in management and cannot bind the firm. A limited partner who does take part becomes liable, as if a general partner, for debts incurred while doing so. They may still inspect the books, examine the state and prospects of the business and advise the partners.

Section 6 also changes several 1890 Act defaults, subject to the agreement. A limited partner’s death or bankruptcy does not dissolve the firm; a limited partner may assign their share with the general partners’ consent; new partners can be admitted without the limited partners’ consent; and a limited partner cannot dissolve the partnership by notice. Under section 10, outside a private fund, an assignment of a limited partner’s share, or a general partner becoming a limited partner, must be advertised in the Gazette and has no effect until it is.

What is a private fund limited partnership?

The Legislative Reform (Private Fund Limited Partnerships) Order 2017, in force from 6 April 2017, created the private fund limited partnership (PFLP). Under section 8D a partnership qualifies if it is constituted by a written agreement and is a collective investment scheme within section 235 of the Financial Services and Markets Act 2000. A new PFLP registers on form LP7; an existing limited partnership applies for designation on LP8, which Companies House says costs £30.

The differences are aimed at passive investors:

  • a limited partner need not contribute any capital unless agreed, and is not liable beyond the partnership property available to the general partners (section 4(2B));
  • in a PFLP registered on or after 6 April 2017, the rule on withdrawing capital in section 4(3) does not apply (section 4(3A));
  • section 6A lists actions that are not taking part in management, including voting on changes to the agreement, approving the accounts, reviewing valuations, sitting on an advisory committee and approving investment or borrowing proposals;
  • limited partners are not subject to the 1890 Act duties to render accounts or not to compete (section 6(5)(f));
  • most changes need not be advertised in the Gazette, though a general partner leaving must be (section 10(1A)).

How are limited partners taxed?

For income tax, section 848 of the Income Tax (Trading and Other Income) Act 2005 says a firm is not regarded as an entity separate from its partners, and HMRC says limited partners are taxed on their profit share like other partners (PM131310). A partnership return is required in the usual way.

Losses are restricted. Under section 104 of the Income Tax Act 2007, sideways relief and capital gains relief for an individual limited partner’s trading losses cannot exceed their contribution to the firm. Section 103C adds an overall cap of £25,000 a tax year for such relief claimed by limited and non active partners. Neither restriction affects relief against profits of the same trade.

Does a limited partnership file accounts?

Generally not. Companies House guidance says there is no requirement unless the Partnerships (Accounts) Regulations 2008 apply. Under regulation 3 they apply to a “qualifying partnership”, which for a limited partnership means one whose general partners are all limited companies (or comparable bodies). Where a UK company general partner is involved, the partnership’s accounts are attached to that company’s own accounts when it files them.

How does this work in practice?

Illustration only. A property developer forms an English limited partnership to build a small housing scheme. GP Ltd, a new company owned by the developer, is the general partner. Ten investors are limited partners, each contributing £50,000. The partnership is not a PFLP.

  • GP Ltd signs contracts and manages the build. If the scheme fails with debts exceeding the assets, creditors can pursue GP Ltd without limit, but each investor’s exposure is their £50,000.
  • One investor, a surveyor, starts instructing contractors on site. That is taking part in management, so for that period they are liable for debts as if a general partner.
  • Another investor asks for £20,000 back halfway through. If paid, that investor is liable for the firm’s debts up to £20,000.
  • An investor with a share of trading losses can relieve them against other income only up to their £50,000 contribution, and within the £25,000 annual cap.

What mistakes are common?

  • Trading before registration, when every partner is exposed to the debts.
  • Limited partners getting involved in day to day decisions outside the protected list.
  • Returning capital to limited partners in an ordinary limited partnership.
  • Assigning a limited partner’s share without the Gazette notice, so it has no effect.
  • Missing the seven day LP6 deadline for changes in partners or contributions.
  • Assuming the PFLP relaxations apply to a partnership that has never been designated.

Company directors can protect the business against the cost of an HMRC check with tax investigation insurance, which pays up to £100,000 of accountant’s fees with Solar Protect. Read how our cover works or get a quote.

Related Accountapedia entries

Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.