British Virgin Islands: Bric and limited partnerships

Author: | Published: 1 Jul 2008
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It is expected that private equity investment in emerging markets through limited partnerships and other vehicles established in offshore financial centres will continue to grow and accordingly it becomes important to explore some of the factors behind this trend. One group for which this is particularly important is the Bric economies – Brazil, Russia, India and China, and similarly placed emerging markets.

Private equity vehicles domiciled in Bric economies tend to be less attractive to international investors and, as a general rule, from a tax perspective are not as streamlined as vehicles domiciled in some financial centres. In terms of pull factors, clearly at the top of the list is the fact that the BVI limited partnership is not subject to tax in the BVI and in common with other jurisdictions like the Cayman Islands, the BVI limited partnership will be seen as a look-through vehicle for tax purposes. However, several characteristics of BVI limited partnerships merit closer examination – for example, these vehicles are flexible, are quickly and easily formed, and involve few public filing requirements.

No separate legal personality

In keeping with limited partnerships established pursuant to the Limited Partnership Act 1907 (UK), a limited partnership in the BVI, established under the Partnership Act 1996 (BVI), does not have a separate legal personality. This is one of the fundamental differences between a partnership and a company. It means that if an action is to be taken by or against the partnership, it must be taken against the general partner(s).

Two or more persons (the expression "persons" having a very wide meaning in the Act) may form a limited partnership – a partnership with one or more general partners and one or more limited partners. The limited partners do not typically take part in the management or control of the partnership business and are not liable for the obligations of the limited partnership. They have limited liability in that they are liable to the partnership for the difference between their contribution as actually made, and that stated in the articles of limited partnership as having been made, and for any unpaid contribution that the articles stated would be made in the future. The general partner on the other hand will, subject to certain parameters, control the partnership, and has unlimited liability.

International partnerships

The procedure that applies in relation to the formation of a limited partnership is similar to that which applies in the formation of a company. Both are straightforward. As is the case with companies incorporated in the BVI, each limited partnership has to have a registered agent. The constitution of a limited partnership consists of a memorandum, which has to be subscribed by the registered agent and articles, which are signed by the persons forming the limited partnership.

In relation to the memorandum the law stipulates few requirements. In summary, it contains basic details of the limited partnership and the type of business it is to carry on. The articles contain the internal regulations of the limited partnership and the substance of the articles will typically be contained in a limited partnership agreement. Only the memorandum has to be submitted to the Financial Services Commission (in practice this means the Registrar of Corporate Affairs) for registration, and so only the memorandum is a public document that is available for public inspection. The articles have to be submitted to the registered agent of the limited partnership and will not be open to inspection by the public.

Upon payment of the prescribed fee the Financial Services Commission registers the memorandum of partnership and issues a certificate of limited partnership. The limited partnership is a limited partnership under the name set out in the memorandum from the date shown on the certificate of limited partnership.

A limited partnership may be established for any object or purpose not prohibited under the Act or under any law in force in the BVI. The objects and purposes may be limited by conditions in the memorandum or articles, and by the fact that a limited partnership may not carry on banking, insurance, trust or company management business.

An international limited partnership is also prohibited from carrying out business with persons resident in the BVI and owning an interest in real property in the BVI other than a lease for property used as an office.

No taxes

The limited partnership must maintain a register of limited partnership interests. The register must contain the names and addresses of the limited partners, the amounts and dates of their contributions and the amount and date of any payment representing a return of any part of a limited partner's contribution. It must be held at the registered office of the limited partnership (and will not, therefore, be open to public inspection).

Other than the register of limited partnership interests, a limited partnership is only required to keep such accounts and records as the partners consider necessary or desirable to reflect the partnership's financial position. Accordingly, no audited accounts are required by law, and no specific accounting standards (UK, US or international Gaap) need be applied.

BVI companies are not required to audit or file accounts. What is required is that the company have financial records to reflect the company's financial position. A related point is that if all of the partners in a BVI limited partnership are companies, whether BVI incorporated or not, it does not create a requirement for the accounts of the limited partnership to be audited, nor do they become open to inspection by the public.

As mentioned above, BVI limited partnerships are not subject to tax in the BVI, and will be regarded as tax transparent, as a general rule, for income tax and capital gains tax. This, combined with the limited liability of the limited partners, is an attractive combination – typically only the partners are taxable. The situation can be distinguished from other countries (although not the BVI) where, for example, the company and dividends are taxable.


The limited partnership will only be regulated under the Mutual Funds Act 1996  (BVI) if the limited partnership is regarded as a mutual fund or a fund under that legislation. Provided that the interests in the partnership do not entitle the holder to receive on demand or within a specified period after demand an amount calculated by reference to the value of a proportionate interest in the whole or in a part of the net assets of the partnership, then the partnership will not be a fund or mutual fund, and will not be regulated for that purpose in the BVI.

Any member of the public may search the file of a limited partnership at the Registry of Corporate Affairs in the BVI on payment of a fee during normal office hours. The file of a limited partnership will contain limited information required by the statute.

Brics made easy

Given economic conditions, brought about, it is thought, at least in part by the sub-prime crisis and the resulting credit crunch, the private equity industry will no doubt focus its attention on the more resilient, though arguably in some cases the more restrictive Bric economies. Special purpose vehicles such as BVI limited partnerships and companies, because of their simplicity and flexibility, have a proven record in facilitating transactions from early stage venture capital to management buyouts or public-to-private transactions and everything in between.

And because of this, they provide a sensible answer to the push factors inherent in emerging market investments.

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