Aspiring entrepreneurs in the Philippines often opt for a limited partnership agreement when starting a business, as it offers a flexible and cost-effective way to bring together investors and managers. But what exactly is a limited partnership agreement, and how does it work in the Philippines? In this article, we’ll explore the ins and outs of this type of business entity.
What is a Limited Partnership Agreement?
A limited partnership agreement is a legal agreement between two or more parties that establishes a limited partnership (LP) in which one or more partners are general partners, while the others are limited partners. The general partners manage the business and assume unlimited liability for its debts and obligations, while the limited partners invest capital but have limited liability.
In the Philippines, a limited partnership agreement is governed by the Civil Code of the Philippines and the Securities and Exchange Commission (SEC) rules and regulations. The agreement must be in writing, signed by all partners, and filed with the SEC.
Benefits of a Limited Partnership Agreement
One of the primary benefits of a limited partnership agreement is its flexibility. It allows for the efficient allocation of management and investment responsibilities, making it a popular choice for businesses with multiple owners or investors. Additionally, the limited partners have limited liability, which protects their personal assets from the business’s debts and obligations.
Another advantage of a limited partnership agreement is that it allows the business to raise capital from investors without having to issue equity and ownership. This means that the general partners can retain control of the company while still accessing the funds they need to grow the business.
How to Form a Limited Partnership Agreement in the Philippines
To form a limited partnership in the Philippines, the following steps must be taken:
1. Choose a business name and register it with the SEC.
2. Prepare the limited partnership agreement, which should include the names and responsibilities of all partners, the amount of capital contributions, the allocation of profits and losses, and the procedure for admitting new partners or withdrawing existing ones.
3. Obtain a barangay clearance and a business permit from the local government unit.
4. Submit the limited partnership agreement and other required documents to the SEC for approval.
5. Pay the registration and filing fees.
Once the SEC approves the limited partnership agreement, the business can start operating legally.
A limited partnership agreement can be an attractive option for entrepreneurs in the Philippines who are looking for a flexible and cost-effective way to start a business. By establishing a limited partnership, they can access capital from investors while retaining control of the company and protecting their personal assets. If you’re interested in forming a limited partnership, make sure to consult with a lawyer or a business expert to ensure that your agreement complies with the legal requirements in the Philippines.