An incorporated limited partnership (ILP) is a special type of limited partnership that can be used by businesses engaged in venture capital projects.
Venture capital is financial assistance that investors provide to start-up companies and small businesses that are believed to have long-term growth potential. It is high risk for the investor as the funding is commonly provided at difficult stages in the business' development, where the chance of failure is greatest. The potential for above-average returns however, is an attractive payoff.
For new ventures that have little or no operating history, it is a means of funding, when financing through bank loans for example, may be difficult to obtain.
There are 4 types of venture capital limited partnerships that can be registered as ILPs under NSW partnership legislation:
- an early stage venture capital limited partnership (ESVCLP)
- a venture capital limited partnership (VCLP)
- an Australian venture capital fund of funds (AFOF) – invests either indirectly through one or more of the above, or directly, but under specific requirements
- a venture capital management partnership (VCMP) – a general partner of one or more of the above, and only involved in management.
A partnership that is an ESVCLP, a VCLP, an AFOF or a VCMP cannot be a corporate limited partnership.
There are taxation benefits for registered ILPs, but before deciding on any business structure, it's important to get professional advice from a business adviser, solicitor or accountant.