In recent years Bahrain has seen the introduction of a series of laws designed to further develop the kingdom’s financial sector, facilitate local and foreign investment, and promote Bahrain as a transparent, secure and cost-effective place to do business in the Middle East and North Africa.

The new legislation introduced since 2014 includes three rounds of amendments to the Commercial Companies Law, the introduction of the Protected Cell Companies Law and the Trusts Law and, significantly, Law No. 18 of 2016 in respect to Investment Limited Partnerships (ILPs), known as the ILP Law.

Bahrain has extended the concept of a free zone further by creating an entirely onshore fund domicile, featuring effective methods to structure investment and raise capital that were not available previously The ILP Law, which was developed by the Central Bank of Bahrain (CBB) in coordination with the Bahrain Economic Development Board, is the first of its kind in the GCC region. Other countries in the Gulf region allow for free zones to be established within their territories, which are legally independent financial areas where various investment funds, including ILPs, are able to be established.

Bahrain has extended the concept of a free zone further by creating an entirely onshore fund domicile, featuring effective methods to structure investments and raise capital that were not available under previous regulations.

Main Features 

An ILP differs from a traditional partnership in that it allows limited partnerships to carry on business in the financial and investment sectors, something that was prohibited before the introduction of the ILP Law. An ILP also has full legal personality and is regulated by the CBB.

ILPs may only carry out certain activities within the financial and investment sectors, as listed in Section 2 of the law. These activities include:

• Private investment undertakings;

• Collective investment undertakings;

• Securitisation;

• Insurance captives; and

• Any other subsequent CBB approved activities. The ILP partnership agreement must include the names and addresses of the partners, and must be notarised in Bahrain and filed with the CBB. Each subsequent amendment must be similarly notarised and filed with the CBB. The name of the partnership must include the abbreviation “ILP” at the end.


An ILP must be made up of at least one or more general partners, and one or more limited partners. A general partner is defined as one who contributes to the partnership’s capital and takes a direct part in its management.

If there is more than one general partner, the partnership may be managed by all, some, or one of the general partners. General partners have unlimited liability for the partnership’s obligations, and if the partnership faces bankruptcy, it is the personal liability of all general partners.

A limited partner, conversely, while contributing to the capital raised by the partnership, is in no way responsible for the partnership’s management and is only liable to the extent of their own capital contribution.

One exception to this rule is in the event that an ILP becomes insolvent. In the event that this happens, under Sections 14 and 15 of the ILP Law, a future disbursement or disbursements already paid out to a limited partner may be cancelled or returned to the partnership to discharge any debts or obligations incurred that led to the insolvency.

Importantly, a limited partner is expressly prohibited from participating in the management of the partnership, pursuant to Section 8 of the ILP Law. As a result of this stipulation, the name of the partnership is not permitted to include the name of any of the limited partners involved.

If a limited partner does take part in the management of the partnership, however, they risk unlimited liability for debts and obligations of the partnership incurred during the period they played a role in its management.

For clarity, Section 5 of the ILP Law provides a non-exhaustive list of activities that are permitted to be undertaken by a limited partner, which for the purposes of the law are not defined as “management”.

Notably, the ILP Law requires that at least one of the general partners be a closed joint-stock company. The closed joint-stock company may be domiciled in Bahrain or in any other jurisdiction expressly accepted by the CBB. If the Bahrain incorporated general partner intends to operate a fund, it must be licensed with the CBB as a category 1 or 2 investment firm or a bank.

If the general partner is a company incorporated outside Bahrain, it must be duly licensed in its home jurisdiction, and have sufficient experience and track record to establish and operate a fund, as required by the CBB.

Alternatively, it is possible for the general partner to be a special purpose vehicle (SPV) in Bahrain, as a closed joint-stock company. It is required that the SPV is owned by a financial institution – which can be either Bahraini or foreign – and has a capital of BD1000 ($2650). The parent financial institution will take responsibility for the obligations and liabilities of the SPV. The SPV will then be able to enter into an agreement with the financial institution, acting as the investment manager.

The remaining general partners and limited partners can be corporate bodies or natural persons, with no restriction as to their domiciliation.

Benefits for Investors

Both limited partners and general partners can reduce their exposure to potential liability and invest more securely thanks to the provisions included in the ILP Law.

It is now possible for limited partners to participate in partnerships in the financial and investment sectors without the risk of being exposed to unlimited liability in the case where the partnership faces insolvency or bankruptcy. In addition, limited partners do not have to take any active role in the management of the partnership.

A general partner, while facing a high standard of liability, may come in the form of a subsidiary of an investment firm. This allows the parent sponsor firm to avoid undue direct liability while still receiving the benefits of the ILP structure.

For example, CBB licensed banks and category 1 and 2 investment companies are able to act as general partners in an ILP.

Other benefits include:

• The ease at which an existing partnership may convert to an ILP;

• The flexibility given to fund managers to determine the terms of their investment; and

• The relatively low costs associated with setting up an ILP with reference to other comparative jurisdictions.


The introduction of the ILP Law will facilitate a change in the structuring of investment partnerships and in turn encourage the expansion of Bahrain’s already well-established investment and financial sectors. The kingdom is the first country in the GCC to establish flexible and cost-effective ILPs, setting an example for the rest of the Gulf region, and bringing Bahrain closer to global financial centres such as Singapore and London.