En Commandite Partnerships and Their Role in Private Equity in South Africa

En commandite partnerships have become an increasingly popular investment structure in the South African private equity and alternative investments landscape. But what exactly is an en commandite partnership, how does it work and why is it so frequently used in private equity funds?

At Barter McKellar, we regularly advise clients on fund structuring, partnership agreements and investment vehicles. In this article, we unpack en commandite partnerships and explain their advantages in the context of private equity.

What Is an En Commandite Partnership?

An en commandite partnership is a type of limited partnership recognised in South African common law. It is an arrangement between:

• One or more general partners (en nomine) — who manage the partnership and carry liability for its obligations; and

• One or more limited partners (en commandite) — who contribute capital but do not participate in management and whose liability is limited to their investment.

The essential legal foundation of en commandite partnerships in South Africa is based on the principles of partnership law and common law contract, as well as court recognition.

How Does an En Commandite Partnership Work?

An en commandite partnership agreement is a private contract between:

• The general partner (GP); and

• Each limited partner (LP).

Key features:

• Limited liability: Limited partners (LPs) are only liable for the amount of their capital contribution. They do not incur personal liability for partnership debts, provided they do not participate in management.

• Confidentiality: Limited partners’ involvement is often not disclosed to third parties, adding an additional layer of privacy.

• Management by GP: The general partner manages the partnership’s affairs and is fully liable for obligations incurred.

• Capital contributions: Limited partners typically commit capital which is drawn down and invested according to the partnership’s investment mandate (common in private equity funds).

• Distributions: Proceeds from investments are distributed according to the partnership agreement, typically on a waterfall basis after fees and expenses.

Why Are En Commandite Partnerships Popular in Private Equity?

• Limited Liability

Private equity investors (often institutional investors, family offices or high-net-worth individuals) want exposure to private equity returns — without risking unlimited liability.

An en commandite partnership allows them to limit liability to their committed capital.

• Tax Transparency

South African courts have recognised that en commandite partnerships are fiscally transparent — meaning income and capital gains flow through to partners who are taxed individually (not at partnership level).

This avoids an extra layer of tax and enables efficient tax planning for investors.

• Regulatory Flexibility

An en commandite partnership is a contractual structure, not a separate legal entity like a company or trust.

As such, it avoids the regulatory burdens of:

• Company law compliance

• Collective investment scheme regulation (if structured correctly)

• Financial advisory regulations applicable to retail products

For private equity funds, this provides a flexible platform for bespoke, negotiated terms with professional investors.

• International Alignment

The en commandite partnership is South Africa’s closest equivalent to the widely used “limited partnership” (LP) in:

• US private equity (Delaware LPs)

• UK private equity (English LPs or Scottish LPs)

• Luxembourg SCSp structures

Using an en commandite partnership makes South African funds more attractive to offshore investors accustomed to LP structures.

Typical Private Equity Structure Using an En Commandite Partnership

Private equity fund investors invest as limited partners in the en commandite partnership.

The GP is often:

• A newly formed company or trust, controlled by the fund manager (sponsor).

• The GP runs the fund, sources deals, and manages investments.

A typical private equity fund structure:

Limited Partners (investors)
⬇
En Commandite Partnership (fund)
⬇
General Partner (manager-controlled entity)
⬇
Portfolio Companies (investments)

Regulatory Considerations in South Africa

When structuring a private equity fund through an en commandite partnership, key legal considerations include:

• FAIS Act: General partner and/or manager may need to be licensed as a Category IIA financial services provider (discretionary fund manager).

• Collective Investment Schemes Control Act (CISCA): Care must be taken to structure the partnership to avoid being classified as a “collective investment scheme” under CISCA — typically done by limiting it to qualified investors.

• Exchange Control: Where foreign investors are involved, appropriate Exchange Control approval is often required.

• Partnership Agreement: Must be carefully drafted to cover:

• Limited liability of LPs

• Waterfall distribution

• Fees and carried interest

• Reporting obligations

• Removal/replacement of GP

• Tax and regulatory compliance

At Barter McKellar, we assist fund sponsors and investors with drafting bespoke partnership agreements for private equity and alternative investment funds.

Conclusion

En commandite partnerships offer an elegant, well-tested structure for private equity funds in South Africa.

They provide:

• Limited liability for investors

• Tax transparency

• Flexibility and contractual freedom

• Alignment with international private equity norms

At Barter McKellar, we have extensive experience in advising:

• Private equity fund managers

• Limited partners

• Family offices

• Institutional investors

on the use of en commandite partnerships for private equity and alternative investments.

If you are considering launching a fund or investing in one — or if you need a specialist partnership agreement drafted or reviewed — our team is ready to assist.