The Inter Pipeline Fund is a major petroleum, natural gas liquids extraction, and bulk liquid storage business operating in Western Canada and Europe. The balance sheet and notes to its financial statements include the following excerpts:
INTER PIPELINE FUND
Balance Sheet (partial)
December 31, 2011
(in thousands)
Partners' equity
Partners' equity..................................................$1,452,066
Total reserves*......................................................(32,280)
Total partners' equity...........................................$1,419,786
*Normally called Accumulated other comprehensive income in a corporation.
INTER PIPELINE FUND
Notes to the Financial statements (partial)
December 31, 2011
Structure of the Partnership
Inter Pipeline Fund (Inter Pipeline) was formed as a limited partnership under the laws of Alberta pursuant to a Limited Partnership Agreement (LPA) dated October 9, 1997. Inter Pipeline's Class A limited liability partnership units (Class A units) are listed on the Toronto Stock Exchange and are classified as partners' equity in the consolidated balance sheets. Pipeline Management Inc. (the General Partner) is required to maintain a minimum 0.1% interest in Inter Pipeline. Inter Pipeline is dependent on the General Partner for administration and management of all matters relating to the operation of Inter Pipeline.
The annual report also states:
"Class A unitholders generally do not have voting rights in relation to matters involving Inter Pipeline or the General Partner, including with respect to the election of directors of the General Partner. The General Partner manages and controls the activities of Inter Pipeline. Class A unit holders have no right to elect the General Partner on an annual or other ongoing basis and, except in limited circumstances, the General Partner may not be removed by the limited partners."
Instructions
(a) What are the advantages to the company of operating as a limited partnership rather than as a general partnership?
(b) Why might there be a restriction on the ability of the limited partners to be involved in matters involving the partnership or in determining who is the general partner?