BEIS: Consultation on Reform of Limited Partnership Law
In 1907 the Limited Partnerships Act was passed. Since then the regulation encompassing UK limited partnerships (UKLPs) has remained relatively unchanged; though the introduction of ‘private fund limited partnerships’ last year as noted below sought to increase the usefulness of the structure for private funds.
However, this is set to change. With increased scrutiny surrounding the improper usage of Scottish Limited Partnerships’ (“SLPs”) for criminal activity, the UK Government’s Department for Business, Energy and Industrial Strategy (“BEIS”) has been considering potential reforms. This has culminated in a consultation being published on the 30th April this year that looks to address perceived issues with UKLPs. It must be noted that these proposals will affect all UKLPs; Scottish and English / Welsh / NI.
The aim of this article is to outline the key parts to the proposed reforms and how they will affect UKLPs.
The essence of the proposals are:
- to ensure that UKLPs maintain a meaningful connection with the UK;
- new annual reporting requirements, and requests views on whether UKLPs should prepare reports and accounts in line with the requirements for private companies;
- to require all those seeking to register a limited partnership to be registered with an anti-money laundering supervisory body.
a) Maintaining a UK Connection
The objective of the proposal is to ensure that every UKLP has a ‘meaningful connection’ with the UK.
In order to meet this objective two proposals have been laid out. Option 1 is to provide that a UKLPs principal place of business must remain in the UK. Option 2 is to allow a UKLP’s principal place of business to be relocated outside the UK but that the limited partnership must have a service address within the jurisdiction of initial registration. These options permit competent authorities to communicate with the limited partnership by serving documents on it at the registered address, which would need to be up to date.
Option 2 would have a less dramatic effect for UKLPs as they would still be permitted the flexibility to locate elsewhere, which is particularly important for AIFMD[i] purposes, while still needing to maintain an up to date connection within the UK.
b) New Annual Reporting Requirements
In order to strengthen the reporting requirements of UKLPs and to try and bring them closer in line with those of UK limited companies, the Consultation suggests that UKLPs should make an annual confirmation statement that confirms that the information contained in the Register of Limited Partnerships is correct.
A further proposal is for UKLPs to have to prepare reports and accounts akin to those prepared by limited companies. ‘Qualifying partnerships’[ii] are already required to prepare such reports and accounts.
The annual confirmation statement is the less controversial of these proposals as UKLPs are already obliged to inform the Registrar of Limited Partnerships when they make certain changes to the limited partnership, so this is merely confirming that this has been done.
The preparation of reports and accounts in line with private companies is more controversial. Not only would this be an increased cost for UKLPs but it would also make potentially commercially sensitive information freely available and reducing the attractiveness of UKLPs as joint venture structures.
c) AML Supervision
Currently there are concerns that formation agents are not properly supervised for AML purposes which provide a weak point in the current AML regulatory framework within the UK.
The Consultation puts forward that UKLP applications will only be able to proceed where the presenter is able to provide evidence that they are being supervised for AML purposes.
Although the Consultation stresses the need to minimise the additional compliance measures they are still considering exactly what evidence they will require and what information will be required from presenters from external jurisdictions that have AML requirements similar to the UK.
The UK Business Minister Andrew Griffiths comments that these reforms will improve transparency and subject UK LPs to more stringent checks “to ensure they can continue to be used as a legitimate way for investors and pension funds to invest in the UK."
The Government in fact enhanced the attraction of UK LPs for investors with legislation which took effect on 6 April 2017. Assuming qualification as a collective investment scheme, the UK LP can opt for a private fund limited partnership (“PFLP”) status. Limited partners in PFLPs benefit from a “white list” of extensive, though not exhaustive, permissible activities similar to those available in other jurisdictions without forfeiting their limited liability. PFLPs can operate more flexibly: for example, PFLP limited partners are not required to make, and can withdraw, capital contributions.
The consultation ends on 23 July 2018 and if you wish to discuss any of these measures then please contact us at Charles Russell Speechlys.
[i] The Alternative Investment Fund Managers Directive (2011/61/EU): whether the relevant Alternative Investment Fund and Alternative Investment Fund Manager are located within the European Union has a significant impact on the application of the AIFMD.
[ii] An LP is a “qualifying partnership” if its (or each of its) general partners is (i) a limited company; (ii) an unlimited company each of whose members is a limited company; (iii) a Scottish partnership that is not a limited partnership, each of whose members is a limited company; or (iv) a Scottish partnership that is a limited partnership, each of whose general partners is a limited company.
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