The UK government has announced plans to introduce reforms to limited partnership law as soon as Parliamentary time allows.
According to the government’s response to its consultation, the aim is to limit the potential misuse of limited partnerships (LPs) but ensure that they remain attractive for legitimate business use, in particular as an investment vehicle.
We await fuller details in the draft legislation. However, broadly speaking, we consider that these reforms strike a good balance between increasing transparency of limited partnerships while not creating an undue administrative burden.
Scottish limited partnerships – separate legal personality
Scottish limited partnerships (SLPs) have separate legal personality, which can make them particularly attractive for funds structures. This feature is unaffected by the reforms.
Presenters to be subject to anti-money laundering controls
It will be mandatory for presenters of new applications for registration of LPs to demonstrate that they are registered with an anti-money laundering (AML) supervisory body. This requirement is aimed at ensuring that money laundering checks will have been carried out before an application to register a LP is made.
The government will seek to ensure that applications from overseas will be subject to equivalent standards.
The government notes that this will prevent direct registrations by presenters who, for whatever reason, are not supervised by an appropriate body. However, it believes the measure is proportionate to increase the transparency and accountability of presenters, given the low number of direct registrations that are currently made.
LPs to maintain demonstrable link to the UK on registration and on ongoing basis
On an application for registration, a LP must provide a proposed principal place of business (PPoB) in the UK.
Under the reforms, to remain eligible as an LP, LPs will have to demonstrate their ongoing connection to the UK. This has to be done in one of the following ways:
- retain their PPoB in the UK;
- demonstrate that they are continuing some legitimate business activity at an address in the UK; or
- demonstrate that they continue to engage the services of an agent that is registered with a UK AML supervisory body and which has agreed to provide its address as a service address for the LP.
Where a LP does not retain its PPOB in the UK, the LP will have to notify the Registrar of any change in its PPOB. It will also be required to notify the Registrar if the way that it demonstrates its ongoing connection to the UK changes.
In its consultation, the government had been considering whether to require a LP’s PPoB to remain in the UK. We are pleased that the government recognised that some flexibility in this regard is important to investors by including two additional options.
We will need to see the draft legislation to find out what evidence will be needed to demonstrate each of the three criteria above. The government will also have to consider how this should apply to existing LPs.
New reporting requirements for LPs
All LPs will have to file a confirmation statement at least every 12 months. SLPs already have to do this, although there are some relaxations for Private Fund Limited Partnerships (PFLPs).
On an application to register, additional information will require to be provided by all LPs:
- contact information for all limited and general partners;
- the date of birth and nationality of all limited and general partners that are natural persons;
- a standard industrial classification (SIC) code identifying the nature of the LP’s business.
Changes to the above information will have to be registered.
There will be a transitional period to enable all existing LPs to submit the additional information.
Under the current special regime for PFLPs, the requirement to disclose investor details, which can be commercially sensitive, was removed. It is not clear whether these new reforms will contain a similar exemption for PFLPs.
Under the current regime, an SLP must provide information about persons with significant control (PSC) on an application to register, and provide any updates to the Registrar.
We await further clarity as to whether or when PSC information will be required from LPs in other parts of the UK. The government states that it plans to explore whether to require beneficial ownership information from corporate partners that do not already hold a PSC register (for example overseas companies).
No requirement to file accounts
In its consultation, the government asked whether all LPs should be required to prepare accounts and reports in line with limited companies.
We welcome the government’s conclusion not to impose this requirement across the board. However, the response states that, where there are any gaps in the requirements for partnerships to file basic accounts with the UK government, the government will close those gaps in a way that is not burdensome or duplicative.
Striking off LPs
The Registrar will be given the power to strike off LPs that are dissolved or which it concludes are not carrying on business or in operation.
The procedure for this is still to be developed.
We do have some concerns about this reform. In particular it is important that any procedure ensures ample safeguards to protect the limited liability of limited partners and against strike offs made in error.