Advantages of a limited liability partnership (limited partnership with a limited liability company)

The complex-sounding yet popular in business practice limited liability limited partnership combines the advantages of both capital companies and partnerships, making it an optimal solution for conducting business activities.

Starting with the basics, it should be noted that this is a type of limited partnership where the general partner is a limited liability company (sp. z o.o.). A limited partnership is a partnership in which at least one partner (the general partner) bears unlimited liability for the partnership’s obligations, i.e., with all their assets, while at least one partner (the limited partner) has liability limited to their contribution.

Advantages of forming a limited partnership where the general partner is a limited liability company include:

1. Optimisation of liability rules for the partnership’s obligations.
In this model, full liability for the partnership’s obligations as the general partner lies with the limited liability company (sp. z o.o.). A limited liability company is a capital company in which shareholders are not liable for the company’s obligations. Therefore, if enforcement against the limited partnership itself proves ineffective, creditors will direct their claims to the assets of the limited liability company.
Besides the general partner (the sp. z o.o.), the limited partnership includes limited partners whose liability for the partnership’s obligations is limited to the amount of their limited contribution (“sum komandytowa”), which can be freely determined in the partnership agreement. If the limited partner’s contribution equals or exceeds this sum, their liability for the partnership’s obligations is excluded.
In practice, the same individuals may found and be shareholders of the limited liability company acting as the general partner and simultaneously be limited partners in the limited partnership.

2. Freedom to define profit-sharing rules.
According to Article 123 § 1 of the Polish Commercial Companies Code (Kodeks spółek handlowych, KSH), the default rule is that limited partners share profits proportionally to their actual contributions. However, an exception allows partners to specify a different profit-sharing arrangement in the partnership agreement. In practice, the right of the general partner (sp. z o.o.) to profits may be limited to the benefit of limited partners, but the general partner cannot be completely excluded from profit participation.
It is also worth noting that the partnership agreement may provide for the payment of advance profit distributions (prepayments) to partners.

3. Representation rules of the limited partnership.
The partnership is represented and managed internally by the general partners. When the general partner is a limited liability company, legal acts on behalf of the limited partnership are performed by that company’s management board. In business practice, it often happens that the same persons who are limited partners also serve as members of the management board of the general partner (the sp. z o.o.), allowing them effective control over the limited partnership.
Those opting for this arrangement should remember that although limited partners’ liability is limited to their contributions, they may still bear extended liability for the limited partnership’s obligations under Article 299 KSH. However, before this liability applies, enforcement must first fail against the limited partnership’s assets and then the sp. z o.o.’s assets. Management board members may be exempt from liability if they prove, for example, that a bankruptcy petition for the sp. z o.o. was filed on time, or that the failure to file was not their fault, or that creditors did not suffer damage even if no petition was filed.

4. No double taxation of profits.
Unlike capital companies or joint-stock limited partnerships, the limited partnership itself does not have a separate tax capacity regarding income tax. This means the limited partnership does not pay income tax; the tax is paid directly by its partners.