As a non-taxable entity, the income from production and operation and other income of a partnership enterprise shall be taxed by the general partner and the limited partner respectively in accordance with the relevant tax regulations of the state. The limited partnership has achieved such rapid development in the venture capital industry in the United States, mainly because the limited partnership itself is not an income tax payer. After all the profits of a limited partnership are distributed to each partner, they will be taxed according to their respective applicable marginal tax rates, thus avoiding double taxation under the company system.
The relationship between 2.2. LP and GP are clear, and the fund management operation is simple and efficient.
In corporate governance, limited partnership fully authorizes general partner (GP) to manage working capital. In the limited partnership system, the limited partner assumes limited liability, but does not participate in management; The general partner bears unlimited liability and has the highest decision-making power, which not only respects the management value of the general partner, but also protects the rights of the limited partner, making the fund management operation simple and efficient.
3. Flexible and effective incentive mechanism and decision-making mechanism
Generally speaking, in the limited partnership agreement, the limited partnership system will give the general partner (GP) more management authority and a more generous profit distribution plan. In GP decision-making, the manager has relatively effective independent decision-making power for the project, and the investment arrangement and voting procedure for capital increase and capital decrease are simple, which can also solve the entrusted financial disputes caused by the guaranteed shares clause; As far as the incentive mechanism is concerned, 20% profit sharing is usually considered as the main way to motivate the general manager of a limited partnership. After collecting a certain management fee, the general partner will also extract a certain percentage of excess income commission after recovering all the capital of the limited partner, that is, the incentive model of "management fee+net income". The limited partnership fully authorizes the general partner to manage the working capital, which makes the interests of the general partner and the limited partner closely combined and greatly improves the enthusiasm of the general partner.
4. Strengthen the restraint mechanism of risk management.
The general partner's authority ranges from fund management to investment income. At the same time, in order to control moral hazard, some domestic limited partnership enterprises have stipulated provisions on horizontal competition in the Limited Partnership Agreement: LP can trade with the limited partnership, LP can operate the business competing with this limited partnership by itself or in cooperation with others, but GP cannot engage in the business competing with the fund, and GP can only invest after the fund has invested 80%; At the same time, from the perspective of the constraint mechanism, the general partner in the limited partnership bears unlimited responsibility for the partnership, which is also a strong risk constraint mechanism. In addition, the term of a limited partnership is generally 5-7 years in China and 7- 10 abroad, and the duration is relatively short. If the limited partner is not satisfied with the management of the general partner, he can choose another general partner after the termination. The restraint mechanism of limited partnership enterprises must be conscious in order to effectively restrain the investment behavior of general partners.
5. Effective use of funds.
The investor's contribution should be "committed contribution", and there is no need to verify capital when registering. When there is investment demand, the general partner shall notify all partners to inject capital in batches according to the proportion agreed in the limited partnership agreement. When there are no good investment projects, the subscribed funds may not be in place temporarily, but when there are good investment projects, the funds can be pooled to avoid the backlog of funds and improve the efficiency of use. However, in terms of bank financing, limited partnership has barriers.
Operational disadvantages of limited partnership:
1. Partner's integrity cannot be guaranteed: at present, China has not established a natural person bankruptcy system, and the partner's integrity cannot be guaranteed, and the responsibility is difficult to trace back. The partner system is largely subject to prior agreement, and it is difficult to realize LP's management and supervision of GP in the later period.
2. Opening a securities account has yet to be implemented: the partnership is not a legal person, and the conditions for opening a securities account according to the relevant provisions of the Securities Law are natural persons, legal persons and social organizations. There is no mention of whether the partnership can open a securities account.
3. The government's policy tends to delay the development of limited partnership: from the policy point of view, it is suspected of "tilting" the company system and "suppressing" the limited partnership.
4. The supporting measures are not perfect, and the standards of different localities and ministries are different: the Ministry of Commerce and the National Development and Reform Commission have adopted the partnership system, but the CSRC still has problems, such as opening securities accounts. Industrial and commercial administrators in some places are not familiar with the registration procedures of limited partnerships.