The Limited Partnerships Bill, which will be enacted on 1st April 2008, looks set level the playing field for foreign investors considering participating in new ventures here in New Zealand. Whilst the legislation covers all kinds of businesses, it should especially assist higher risk technology ventures looking for investors.
According to an article by legal firm Chapman Tripp, although New Zealand already ranks highly as a safe and attractive investment destination, we have been out of step with other countries in which partnership structures are the chief vehicle for equity capital investment. Harmonising the law around such structures should streamline the investment process however.
Under a limited partnership the liability of investors (in the limited partner category) is no greater than the amount of capital they have placed to acquire equity. Upon exit the first $50,000 in capital gain is non-taxable and the balance is assessed based on each individual investor’s liability, which may vary. Unlike a company, the partnership itself is not taxed.
In a recent article I argued that we need a mix of both local and foreign investment flowing into our technology start-up ventures. Only time will tell whether or not this new legislation will be helpful. My feeling is that it will not change the fact that we are geographically distant from the leading capital markets of the world. At a time when there is a question mark over how Investment NZ has performed historically, I believe we need a fundamentally different model to attract and retain productive foreign capital, especially in the technology sector.
Angel networks are emerging as successful sources of seed capital. But very few angel investors would be looking at investing sums over $1M. So for larger projects and second tier funding we still need to be able to tap into offshore sources of capital. These are challenging times for equity investors globally. What is the best way to go about it?