Services Limited Partnership - The Original Partnership Vehicle

Auguest 12, 2004
By Richard Smith, LLB

With the numerous different types of partnership vehicles that are being established today, it is sometimes hard to lose sight of the fact that limited partnerships were originally intended to provide limited liability protection to those in the service industry.

More to the point, a services limited partnership was seen as an acceptable means by which those involved in traditional services industries, such as accountants and lawyers, could limit their liability.

Prior to Texas enacting its limited liability partnership law in 1991, those involved in the accounting and legal service industry had no means of limiting their liability. In short, this was because, historically, partners involved in such industries were nor allowed to protect themselves from liability by establishing themselves as limited companies. As the only other vehicle open to them was unlimited liability partnership, this was their chosen mode of operating their business.

However, following certain potentially litigious events in the early 1990s, in particular the collapse of the savings and loan structure in Texas, the potential for accounts and lawyers to be sued magnified. Services limited partnerships were the state's answer to resolve the potentially huge liability each of the partners in the service provider faced

Service Limited Partnership - The Future
It would be fair say that most service-related industries have taken advantage of limited partnership status, in some cases the business have now grown to such enormous size that it is questionable whether or not a limited partnership is still the best entity that those involved in such service industry can still use.

Notably the problems that exist with a limited liability structure for those involved in the service industry came to the attention of most following the recent scandals involving accounting firms associated with Enron. In these cases, the whole limited partnership has fallen apart and dissolved due to the actions of one or two partners.

However, unlike the past, where this may have only involved those working in one or two offices, in these cases the actions of the one or two partners ended up having an affect on those who worked in completely different countries, half way across the world, to the partners whose actions caused the initial problem.

For this reason, although a limited partnership may still be the chosen entity for those who offer small services, it is likely that any large scale service provider is going to need to consider evolving again into a new form of business entity, least run the risk of losing everything.