The government has confirmed that it will be pressing ahead with plans to make changes to partnership legislation for private equity and venture capital funds.
The proposals, which will see the creation of a new private fund limited partnership vehicle (PFLP), are expected to be in place by April 2017.
Limited partnerships are a widely used structure for European private equity and venture capital funds. By reducing the legal complexity and administrative burden associated with such structures, the government's aim is to retain the limited partnership as the market standard in an increasingly competitive global market.
Our 2015 article outlined the original proposals from the consultation. The government has now considered, and responded to, the submissions received. It has outlined a number of changes to the initial plans, which include:
- Certification: on application for PFLP status, there will no longer be a requirement for a solicitor to certify that the limited partnership meets the qualifying registration requirements. This may now be certified by the general partner
- Time limit: there will no longer be a time limit within which existing limited partnerships may re-designate as PFLPs. The originally proposed one-year transitional period has been removed and existing limited partnerships may apply for re-designation at any time
- Eligibility: in response to concerns over confusion in ascertaining whether a fund would be eligible for the PFLP regime the government has confirmed that, in using the definition of 'Collective Investment Scheme', it will exclude the exceptions under s.235(5) of the Financial Services and Markets Act 2000. This will enable more funds to be included and will avoid costs involved in identifying whether the funds would have been caught by the exceptions
- Strike off: the proposal to include a strike-off procedure for PFLPs has been parked, for the time being, following concerns over the potential loss of limited liability status for limited partners where the strike off is not accompanied by a winding up. In addition, in order to achieve the intended outcome of an up to date register, the government recognised that it would need to be applied to all limited partnerships. It will therefore explore this separately
- White list: in response to calls for a wider list of 'white list' activities which a limited partner may carry out without losing its limited liability status, the government has confirmed that it will clarify that the list is not intended to be exhaustive, although it declined to add any further activities to the list
- Capital contributions: the proposed removal of the requirement for limited partners to make a capital contribution has been confirmed, but there will now be a carve out treatment for existing limited partnerships:
If the limited partnership was established before the new legislation, capital contributions made before transfer to PFLP status will be treated as under the existing regime (ie will not be withdrawable, if withdrawn the partner will remain liable and the capital contributions will continue to be declared). Capital contributions made after transfer to PFLP status may be withdrawn without liability and without the declaration requirement
For limited partnerships registered after the implementation of the new legislation, on transfer to PFLP status, all capital contributions need not be declared and will be withdrawable, regardless of whether they were made before or after the designation of new status
- Winding up: following concerns that allowing limited partners to wind up the company without a court order would lead to them taking part in management decisions, and thus losing limited liability status, the limited partners will now be permitted to appoint a third party to wind up the partnership, but not do so on their own account
- Gazette notice: the removal of the requirement to advertise in the Gazette on transfer of a limited partner's interest will go ahead but, in response to concerns that change in liability status should continue to be advertised, the requirement for advertisement on change in status of a general partner to limited partner will remain
The government intends to put forward draft legislative amendments in a Legislative Reform Order to be laid before Parliament in due course. It expects the reforms to be fully operational by April 2017.