On the same day as the government issued a call for evidence as part of a wider review on limited partnerships in the UK, a new draft legislation reform order was published which will create a new status for certain limited partnerships.
The Legislative Reform (Private Fund Limited Partnerships) Order 2017 (Order) will introduce a new limited partnership for use specifically in private investment funds. The private fund limited partnership (PFLP) will enjoy a lower level of administrative burden in order to retain the UKs place as an attractive centre for fund domicile.
The Order makes changes to the Limited Partnerships Act 1907. Under the changes, the new PFLP status will:
- be available to limited partnerships which are constituted by written agreement and which qualify as a collective investment scheme
- not require limited partners to make any capital contribution
- enable limited partners to appoint a person to wind up the PFLP if there is no general partner available to do so
- have the benefit of a 'white list' of actions which limited partners may take without being regarded as taking part in the management of the limited partnership
- remove certain duties from limited partners which are inconsistent with the role of an investor in an investment fund
The changes are reflective of the use, in practice, of limited partnerships as investment vehicles. These have grown in number and importance within the UK and it is clear that the government has taken these steps to reduce legal complexity and administrative burden in order to ensure that the UK remains competitive in this market.
The wider future of limited partnerships
However, limited partnerships, generally, are currently under scrutiny following allegations of their use for criminal activity. The spotlight is focused mainly on Scottish limited partnerships, but the government appears to be considering the need for greater transparency and reporting requirements for limited partnerships in the UK as a whole, which will necessarily bring increased administrative burden. You can read more on the wider review here. Until the government issues its findings from the call for evidence, the effect of the wider review on the new PFLP status will be unknown.
It is expected that the Order introducing the new PFLP status will come into force on 6 April 2017.