Incorporated Limited Partnerships (ILPs) are a type of partnership which can be set up under most State and Territory partnership legislation.  ILPs appear to be the preferred entities to use when applying for registration of a limited partnership for venture capital purposes under Commonwealth legislation. 

In 2007, the Commonwealth has introduced another type of limited partnership for venture capital investment purposes, the Early Stage Venture Capital Limited Partnership (ESVCLP).   Following the Commonwealth action to introduce ESVCLPs, the NSW Government has amended its Partnership Legislation to provide for the registration of ESVCLPs as ILPs under NSW law.  The Office of Fair Trading administers the registration arrangements under the partnership legislation.  Fair Trading has revised its ILP registration procedures, including making the application for registration fee more competitive, by  lowering it from $869 to $500.

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What is venture capital?

Venture capital is an important source of funds for start-up companies, expanding businesses and restructuring businesses.  Venture capital is high risk as it provides funding to companies at difficult stages in their development where the risk of failure is greatest.  The venture capital process attempts to prevent this failure by working with the management of investee companies through the growth phase.

Limited partnerships for venture capital introduced under Commonwealth legislation

In 2002, the Commonwealth enacted the following legislation to establish three new forms of limited partnerships to be used as a structure for venture capital investment: the Taxation Laws Amendment (Venture Capital) Act 2002 (Cwth) and the Venture Capital Act 2002 (Cwth).  The three new types of limited partnership created by these Acts are:

• the Venture Capital Limited Partnership  (VCLP)
• the Australian Venture Capital Fund of Funds (AVCFOF)
• the Venture Capital Management Partnership (VCMP).

The purpose of each of the above types of limited partnership is as follows:

• VCLPs invest directly in companies
• AVCFOF structures diversify investment risk by investing across a range of venture capital limited partnerships
• VCMPs, according to the Income Tax Assessment Act 1936 (Cwth), can only be involved in the management of these other bodies.

Concessional tax treatment

To obtain concessional tax treatment under the Commonwealth legislation the venture capital limited partnerships must be registered under the Venture Capital Act 2002 (Cwth).

International consistency

The Commonwealth legislation was designed to align the Australian tax regime applicable to venture capital investment structures with that of most other developed countries.

Why complimentary NSW legislation was introduced?

In 2004, NSW enacted the Partnership Amendment (Venture Capital Funds) Act 2004 to complement the 2002 Commonwealth Acts.  The NSW amendments allowed for a new form of corporate entity, the incorporated limited partnership, for use as a structure for the new types of limited partnership to be reflected in the NSW partnership legislation.

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Commonwealth introduces ESVCLPs in 2007

The Tax Laws Amendment (2007 Measures No. 2) Act 2007 (Cwth) amended Commonwealth legislation in 2007 to provide for another type of limited partnership for venture capital purposes - Early Stage Venture Capital Limited Partnerships (ESVCLPs).

The ESVCLP structure offers tax free returns to both overseas and resident investors where the ESVCLP makes investments into eligible entities with total assets of not more than $50 million before the investment is made.

NSW partnership legislation updated for ESVCLPs

The NSW Partnership Act 1892  has been amended by the Partnership Amendment (Venture Capital) Act 2007 to enable ESVCLPs and proposed ESVCLPs to be registered as incorporated limited partnerships under that Act.

The fees for incorporated limited partnerships (ILPs), including the ESVCLP type of ILPs, have been reviewed, and some of those fees have been amended by the Partnership Further Amendment (Fees) Regulation 2007.

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The NSW Government encourages the registration of the different types of venture capital limited partnerships, including ESVCLPs, as ILPs under the NSW law, to help boost economic growth and provide more jobs for people in NSW. 

The Office of Fair Trading is responsible for administering the Register of Limited and Incorporated Limited Partnerships under the NSW Partnership Legislation.

To assist people wishing to register an ILP, Fair Trading has prepared an Application for registration of an Incorporated Limited Partnership form in PDF format (size: 500k) which provides for the registration of the following venture capital limited partnerships as ILPs under the NSW partnership legislation:

• VCLPs
• ESVCLPs
• AFOFs
• VCMPs.

Fair Trading has also reviewed its registration fees for  ILPs and has decided to lower the fee for an application for registration of an ILP to $500 to make the fee more competitive.  Fair Trading has also streamlined the fee schedule in the Partnership Regulation 2007 to remove “per change” and “per page” fees which are no longer required, as a result of improvements in the storage and retrieval arrangements for the Register of LPs and ILPs.  (For the latest list of fees, refer to Schedule 2 of the Partnership Regulation 2007 (NSW) at www.legislation.nsw.gov.au).

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People inquiring about registering an ILP may contact the Business Registration Branch of Fair Trading and speak with the Co-ordinator on (02) 9372 9136.

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Investors, interested persons and professional advisors should make their own inquiries about whether registering an ILP is applicable to their circumstances.

In that regard the following websites may be useful sources of information.

• www.avcal.com.au
  Website of the Australian Private Equity & Venture Capital Association Limited (AVCAL), which, according to its website, was established as a forum for industry participants to meet, to pursue topics of common interest, to promote the local industry and to encourage investment in growing business enterprises.  AVCALs mission is to create a world-best environment in Australia for private equity, venture capital and entrepreneurship.
• www.ausindustry.gov.au
  Website of the Australian Government’s agency, AusIndustry, for delivering products, services and information that support industry, research and innovation.  The website includes entries for ESVCLPs and other venture capital limited partnerships.
  

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