Limited partnership reform proposes a new private fund vehicle

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Summary: HM Treasury’s 23 July 2015 proposals to amend UK limited partnership law is designed to maintain and enhance the UK as a competitive fund domicile. The changes will create a new fund vehicle – a ‘private fund limited partnership’ (PFLP), and UK limited partnerships that meet the PFLP conditions and are so registered can take advantage of a more generous and flexible limited partnership regime. Existing UKLPs can also elect into this regime on the same basis, although HM Treasury’s proposals provide they can only do this in the first year of the changes coming into effect: we would prefer re-registration not to be limited in time at all. The existing rules will continue to apply for other UKLPs.This briefing summarises some of the main proposals, and our comments on them.

HM Treasury’s 23 July 2015 proposals to amend UK limited partnership law are designed to maintain and enhance the UK as a competitive fund domicile. The changes will create a new fund vehicle – a ‘private fund limited partnership’ (PFLP), and UK limited partnerships (UKLPs) that meet the PFLP conditions and are so registered can take advantage of a more generous and flexible limited partnership regime. Existing UKLPs can also elect into this regime on the same basis, although HM Treasury’s proposals provide they can only do this in the first year of the changes coming into effect: we would prefer re-registration not to be limited in time at all. The existing rules will continue to apply for other UKLPs.

The government confirmed that it remains committed to exploring the possibility of allowing funds in the UK (outside Scotland) to elect to have separate legal personality, however the consultation notes that this requires further work to examine the implications of such a change, and does not form part of these proposals.

Comments on the proposals and the draft legislation are requested by 5 October 2015. Overall we broadly welcome the proposals and will be submitting a joint response with other law firms working in the investment management space. We would be happy to assist our clients and contacts in discussing with you any thoughts you may have on the proposals.

We have summarised some of the main proposals below, along with our comments.

A white list of activities that a limited partner in a PFLP may undertake

These activities may be undertaken without a limited partner in a PFLP being considered to be taking part in the management of the business and therefore without losing its limited liability. The list is comprehensive and includes, for instance, consulting and advising the general partner or manager on the partnership’s affairs or accounts, taking part in investment decisions and discussing the prospects of the partnership business.

Comment: This is a welcome change and brings UK limited partnership law into line with other limited partnership laws (Jersey, Guernsey, Luxembourg, Cayman, Delaware) that have safe harbour lists and so provide more certainty for investors as to what actions constitute “taking part in the management of the partnership business”. We will be asking for confirmation that this list does not give rise to an inference that these activities constitute taking part in management in relation to a limited partnership that is not a PFLP.

Capital contribution will no longer be required for limited partners in PFLPs

Removal of the requirement for limited partners in PFLPs to make a capital contribution, and removal of the liability of limited partners in PFLPs for capital contributions that have been withdrawn.

Comment: This is another welcome change that facilitates flexibility in how the partnership is funded. For firms that are not designated as PFLPs, the existing provisions remain.

Registration process simplified

Simplification of the registration process by removing some of the requirements for the details that must be specified when a PFLP is registered and when such details change.

Comment: Details that do not need to be provided for PFLP registrations (but will still apply for other limited partnerships) include: general nature of the partnership business; amount and details of the limited partners’ capital contribution; and the term of the partnership.

Gazette advertisement no longer required

Removal of the requirement to advertise in the Gazette if a general partner becomes a limited partner in a PFLP or a limited partner assigns its interest in a PFLP to another person.

Comment: The advertising of notices in the Gazette is outdated and our view is that notice on the register of PFLPs maintained by Companies House should be sufficient.

Removal of some statutory partnership duties

Removal of the duties of limited partners in PFLPs to render accounts and information to other partners and to account for profits made in competing businesses.

Comment: This removes some of the statutory burdens from limited partners (whilst allowing partners to agree otherwise).

More flexibility in winding up a PFLP

A proposal to allow the partners in a PFLP to agree among themselves who should wind up the partnership, without having to obtain a court order.

Comment: This would make winding up by partners easier, as there would be no requirement for a court order if the winding up is by limited partners.

Being struck off the Companies House PFLP register

Introduction of a procedure to enable a PFLP to be struck off  the Companies House PFLP register (either voluntarily on application, or by the registrar). The effect pending dissolution is that the PFLP becomes a general partnership, but that the limited partners’ limited liability is preserved before the PFLP is struck off.

Comment: Currently, there is no procedure to remove a UKLP from the register. This proposed change will ensure that the register is kept up to date. We would prefer that PFLPs that are removed from the register of PFLPs revert to ordinary limited partnerships, rather than general partnerships, so that limited partners do not thereby lose their limited liability.

We will update you with any further developments in this area and once the proposals are in final shape. In the meantime, the law governing UKLPs remains unchanged.

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