New bill encourages venture capital investment

  • Lianne Dalziel

New Zealand firms will have easier access to investment capital under a bill to establish new regime of limited partnerships tabled in parliament today by Commerce Minister Lianne Dalziel.

Limited partnerships are an internationally preferred structure for investing in venture capital.

"Venture capital provides a valuable source of funding for new companies and early stage expansion capital, but the absence of an internationally recognised legal and tax structure is an impediment to foreign venture capital investment here," Lianne Dalziel said.

"In a highly competitive international venture capital market, New Zealand is disadvantaged by size and distance. This makes it particularly important that we adopt a limited partnership structure that is consistent with international norms and that provides the form of legal and tax structure that is recognised and accepted by investors. This bill provides such a structure and encourages the development of the venture capital industry in New Zealand,” Lianne Dalziel said.

The key regulatory features of the bill include:

  • "General" partners who are liable for the debts and obligations of the partnership;
  • "Limited" partners whose liability is limited to the amount of their investment, so long as they do not take part in the management of the partnership;
  • Provision for 'safe harbour' activities so that limited partners are able to participate in strategic activities without this affecting their liability; and
  • Providing a separate legal personality for limited partnerships.

"While limited partnerships can encourage venture capital investment, they are not exclusively designed for that, and may be used as a flexible alternative to a company or other legal form," Lianne Dalziel said.

The limited partnership will receive "flow through" tax treatment, meaning the partnership itself is not taxed. Instead each partner is taxed individually at that partner's personal tax rate. The addition of a separate legal personality requires changes to tax rules to enable limited partnerships to receive "flow through" tax treatment rather than being treated as a company, and this would be done concurrently, Lianne Dalziel said.