First, it is conducive to mobilizing the investment enthusiasm of all parties and achieving the best combination of investors and managers. Limited partners are only limited to the amount of capital contribution, which is the most prominent feature and value of limited partnership. Usually, people with financial strength are reluctant to invest in general partnerships with unlimited liability out of caution, and the moral hazard of operators caused by the separation of ownership and management rights in the company also makes them stop. On the other hand, people with investment management ability are often limited by the scale of funds, and it is difficult to realize their ideals under the company system. While enjoying management power and more benefits, they are more willing to become general partners with unlimited responsibilities. The limited partnership system fully meets the needs of these two markets, ensures the best combination of capital, technology and management ability, and obtains the greatest benefits.
Second, limited partnerships have more operational flexibility and business confidentiality than companies in their establishment and operation. Limited partnership is based on agreement, and its legal provisions are more flexible than those of companies. There are more arbitrary rules than mandatory rules, and many aspects can be decided by partnership agreement, which is more suitable for the different needs of investors. In addition, the information disclosure obligation of partnership enterprises is far looser than that of companies, which only meets the requirements of creditor protection and government supervision and is more attractive to investors.
Third, the limited partnership does not need to pay enterprise income tax, and the tax burden is light. Tax laws in various countries usually levy income tax on companies and shareholders separately, but not on limited partnerships, only on individual partners. This is an important economic reason for the rapid development of limited partnership system.
Fourth, limited partnership provides a convenient exit channel for venture capitalists. It is more convenient for limited partners to transfer their partnership shares than ordinary partnerships, and the transfer of partnership shares will not affect the continued existence of limited partnerships, which provides a more convenient exit channel for venture capital than the issuance and listing of company shares.