172 5 Equity and Shareholders’ Capital
Duties of disclosure. Because of unlimited liability, a partner typically has full
access to the books and documents of the firm. Other partners have a duty of
disclosure.^160 In addition, the parties’ mutual disclosure duties are typically based
on the principles that govern the general disclosure duties of contract parties
(Volume II).
5.6.4 Shares in Limited Partnerships
Two other forms of partnerships are the limited partnership (LP, KG, société en
commandite, società in accomandita) and the limited liability partnership (LLP).
Limited partnerships were known in Roman law (societates publicanorum) as well
as in medieval Italy (commenda). Limited partnerships belong to the most popular
enterprise forms in continental Europe. They did not become as popular in Eng-
land because English business practice used to lag behind that of continental
European countries in book-keeping.^161
The limited partnerships can be used by many kinds of firms. (a) Limited part-
nerships are often used by investment funds because of company law reasons (it
can pass through profits from investments to fund investors, see also section 10.5)
and because of tax reasons (often it is tax transparent or pass-through for tax pur-
poses). Private-equity firms almost exclusively use a combination of general and
limited partners for their investment funds. Typically, the general partner that
manages the limited partnership will provide 1%-3% and a large number of lim-
ited partners the rest of the limited partnerships equity capital. The latter will often
not pay right away. Instead, the limited partners promise to pay when asked to do
so after a suitable acquisition target has been found (Committed Capital).^162 (b)
Limited partnerships can also be useful in “labour-capital” partnerships, where
one or more financial backers prefer to contribute money or resources while the
other partner performs the actual work. In such situations, the general partner can
use its own unlimited liability to signal the quality of the investment, and the fi-
nancial investor can use it as an incentive that mitigates agency problems. (c)
Most limited partnerships are nevertheless family businesses.
It is characteristic of a limited partnership that it has one or more partners with
unlimited liability and one or more partners (investors) with limited liability.^163 In
a limited liability partnership (LLP),^164 all partners have some degree of limited li-
ability. The personally liable partner in a limited partnership can also be a com-
pany with limited liability. A limited liability limited partnership is common in
many US states (LLLP) and in Germany (the GmbH & Co. KG). The GmbH &
(^160) Section 28 of the Partnership Act 1890: “Partners are bound to render true accounts and
full information of all things affecting the partnership to any partner or his legal repre-
sentatives.”
(^161) For US law, see Kessler AD, Limited Liability in Context: Lessons from the French
Origins of the American Limited Partnership, J Legal Studies 32 (2003) pp 511–548.
(^162) Rudolph B, Funktionen und Regulierung der Finanzinvestoren, ZGR 2008 pp 161–184.
(^163) For German law, see §§ 161–177a HGB. For Swiss law, see Art. 594(1) OR.
(^164) For English law, see the Limited Liability Partnerships Act 2000.