Limited Partnership under Kuwaiti Companies Law

A Limited Partnership is one of the forms of companies regulated by Kuwait Companies Law No. 1 of 2016. It is characterized by having two categories of partners whose legal positions differ in terms of liability for the company’s obligations and the right to participate in its management.

Kuwaiti law regulates two forms of limited partnerships:

1. Simple Limited Partnership.

2. Partnership Limited by Shares.

Choosing either form entails important legal consequences concerning the liability of partners, management of the company, capital structure, and the transfer of partnership interests or shares.

First: Simple Limited Partnership

What is a Simple Limited Partnership?

A Simple Limited Partnership is a company consisting of two categories of partners:

General Partners: General partners are jointly and severally liable for the company’s obligations with all of their personal assets. They are also the category of partners entitled to manage the company. Under the law, all general partners must be Kuwaiti nationals.

Limited Partners: Limited partners contribute to the company’s capital, and each limited partner’s liability for the company’s obligations is limited to the amount of his or her contribution to the capital.

Accordingly, the fundamental distinction between a general partner and a limited partner concerns the extent of liability. A general partner’s liability may extend to his or her personal assets, whereas a limited partner’s liability is, as a general rule, limited to his or her contribution to the company’s capital.

Establishment of a Simple Limited Partnership

With respect to its establishment, registration in the Commercial Register, minimum capital, assignment, pledge or attachment of partnership interests, amendment of the company’s memorandum of association, and management, a Simple Limited Partnership is subject to the provisions governing General Partnerships insofar as no specific provision applies to Simple Limited Partnerships.

In addition to the information required by law, the company’s memorandum of association must specify the names of the general partners and limited partners, their nationalities and domiciles, and the amount of each partner’s contribution to the capital.

The law also requires Kuwaiti ownership to represent no less than 51% of the company’s capital.

Name of a Simple Limited Partnership

The name of a Simple Limited Partnership consists of the names of all general partners, or the name of one or more of them, together with wording indicating the existence of other partners. The company name must also indicate its legal form as a Simple Limited Partnership.

The name of a limited partner may not be included in the company’s name.

This rule is particularly important for the protection of third parties dealing with the company. If the name of a limited partner is included in the company’s name without objection from that partner, the limited partner may, in relation to a third party acting in good faith, incur the liability applicable to a general partner.

Management of a Simple Limited Partnership

A Simple Limited Partnership is managed by one or more managers appointed by all partners. A manager may be selected from among the general partners or may be a third party.

A limited partner may not participate in the management of the company, even pursuant to an authorization or power of attorney.

If a limited partner participates in management, he or she may become personally liable, with all personal assets, for obligations arising from acts actually performed on behalf of the company.

Can a Limited Partner Monitor the Company?

Yes. The prohibition against a limited partner participating in management does not prevent that partner from monitoring the company or protecting his or her investment.

The following activities are not considered prohibited management activities: monitoring the actions of managers, examining the company’s books, providing opinions or advice to managers, or authorizing managers to undertake certain transactions that exceed the limits of their authority.

A distinction must therefore be made between managing and representing the company in dealings with third parties and exercising the monitoring and supervisory rights granted to a limited partner by law.

Liability of a General Partner

A general partner bears extensive liability for the debts and obligations of a Simple Limited Partnership. Such liability is not limited to the amount of the general partner’s contribution to the capital but may extend, in accordance with the applicable legal provisions, to his or her personal assets.

Accordingly, becoming a general partner entails significant legal and financial responsibilities that should be carefully considered before entering into the partnership.

Liability of a Limited Partner

As a general rule, a limited partner is liable for the company’s obligations only up to the amount of his or her contribution to the capital.

Limited liability is one of the principal characteristics distinguishing a limited partner from a general partner.

However, this protection is linked to the limited partner’s compliance with the legal restrictions applicable to his or her role, most importantly the prohibition against participating in management. Furthermore, the inclusion of the limited partner’s name in the company’s name without objection may result in that partner assuming the liability of a general partner toward third parties acting in good faith.

Difference Between a General Partner and a Limited Partner

The principal distinction is that a general partner may participate in managing the company and bears personal and joint and several liability for its obligations, which may extend to his or her personal assets.

A limited partner, on the other hand, contributes capital and, as a general rule, is liable only up to the amount of his or her contribution and may not participate in the management of the company.

This structure makes a Simple Limited Partnership suitable for situations in which some partners wish to manage the business and assume the associated responsibilities, while others prefer to participate financially without becoming involved in management.

Second: Partnership Limited by Shares

A Partnership Limited by Shares differs from a Simple Limited Partnership in terms of its capital structure and the legal status of its non-general partners.

A Partnership Limited by Shares consists of:

• General Partners, who are liable for the company’s obligations with all of their personal assets.

• Shareholder Partners, whose liability for the company’s obligations is limited to the value of the shares they hold in the company’s capital.

As a general rule, a general partner is subject to the legal provisions applicable to a partner in a General Partnership, while a shareholder partner is subject to the provisions applicable to a shareholder in a Closed Shareholding Company, insofar as such provisions do not conflict with the specific rules governing Partnerships Limited by Shares.

Capital of a Partnership Limited by Shares

The company’s capital must be sufficient to achieve its purposes and must be divided into shares of equal value that are indivisible.

The interests of general partners are not transferable in the same manner as the shares held by shareholder partners. Instead, their transfer, attachment, and pledge are governed by the rules applicable to partnership interests in a General Partnership.

The shares held by shareholder partners are subject, with respect to their transfer, attachment, and pledge, to the provisions governing Closed Shareholding Companies.

Number of Partners in a Partnership Limited by Shares

A Partnership Limited by Shares must have at least five partners, including at least three shareholder partners.

All partners must sign the company’s memorandum of association, and the general partners are responsible for completing the company’s incorporation procedures.

Management of a Partnership Limited by Shares

The company is managed by one or more managers selected from among the general partners, and the company’s memorandum of association determines their powers and responsibilities.

A shareholder partner may not participate in management, even pursuant to authorization from the general partners. If a shareholder partner participates in management, he or she may become jointly and severally liable with the general partners for obligations arising from the management activities performed.

Partners who are not managers nevertheless have the right to inspect the company’s books and documents and request information concerning the company in accordance with the law.

Supervisory Board

If the number of shareholder partners in a Partnership Limited by Shares exceeds seven, the company must have a Supervisory Board consisting of at least three members elected by the General Assembly from among the shareholder partners.

The Supervisory Board performs the functions prescribed by law and submits a report on the results of its activities to the General Assembly.

General Assembly

A Partnership Limited by Shares has a General Assembly consisting of all general partners and shareholder partners.

To the extent provided by law, the provisions governing the General Assembly of a Closed Shareholding Company apply to the General Assembly of a Partnership Limited by Shares.

The company’s memorandum of association may only be amended in accordance with the special majority requirements prescribed by law, including the approval of all general partners together with the legally required number of shareholder partners.

Difference Between a Simple Limited Partnership and a Partnership Limited by Shares

Although both forms involve general partners alongside partners whose liability is limited, there are significant differences between them.

In a Simple Limited Partnership, a limited partner participates in the company’s capital through a partnership interest or capital contribution.

In a Partnership Limited by Shares, the capital is divided into shares, and the non-general partner participates as a shareholder.

A Partnership Limited by Shares is also subject to a more detailed corporate governance framework concerning shares, the General Assembly, and the Supervisory Board. Its legal framework incorporates certain provisions applicable to both General Partnerships and Closed Shareholding Companies.

Frequently Asked Questions About Limited Partnerships in Kuwait

What is the difference between a general partner and a limited partner?

A general partner is personally and jointly and severally liable for the company’s obligations, and such liability may extend to his or her personal assets. A limited partner’s liability, as a general rule, is limited to the amount of his or her contribution to the capital of a Simple Limited Partnership.

Can a limited partner manage a Simple Limited Partnership?

No. A limited partner may not participate in management, even pursuant to an authorization or power of attorney. If a limited partner participates in management, he or she may become personally liable for obligations arising from the activities actually performed on behalf of the company.

Can a limited partner inspect the company’s books?

Yes. Monitoring the managers’ actions, inspecting the company’s books, and providing opinions to managers within the limits permitted by law are not considered participation in management.

Can the name of a limited partner be included in the company’s name?

No. If a limited partner’s name is included in the name of a Simple Limited Partnership without objection, that partner may be treated as a general partner in relation to third parties acting in good faith.

Who manages a Simple Limited Partnership?

A Simple Limited Partnership is managed by one or more managers appointed by all partners. A manager may be one of the general partners or a third party.

What is the difference between a Simple Limited Partnership and a Partnership Limited by Shares?

The principal difference concerns the capital structure and the legal status of the non-general partners. In a Simple Limited Partnership, the limited partner participates through a capital contribution or partnership interest, whereas in a Partnership Limited by Shares, the non-general partner participates as a shareholder holding shares in the company’s capital.

Which law governs Limited Partnerships in Kuwait?

Limited Partnerships are governed by Kuwait Companies Law No. 1 of 2016. Simple Limited Partnerships are regulated under Articles 56 to 59, while the provisions governing Partnerships Limited by Shares begin with Article 60.

Disclaimer: This content is provided for general informational purposes regarding the legal provisions governing Limited Partnerships in the State of Kuwait. It does not constitute legal advice and should not be considered a substitute for consulting the applicable legislation, regulations and decisions or obtaining professional legal advice in relation to a specific matter.