The Government is consulting on reforms to limited partnerships (“LPs”) in the UK. The report stems from concerns that LPs might be being misused, particularly for money laundering.
The consultation follows the Government’s call for evidence on the subject in January 2017.
LPs are popular vehicles for private equity, venture capital, investment and real estate funds. In Scotland, LPs have also been used historically by the agricultural community. Scottish LPs are also sometimes used in certain pension scheme investments.
Unlike companies, LPs in England, Wales and Northern Ireland are not separate bodies corporate and do not have legal personality. By contrast, Scottish LPs do have separate legal personality (although they are not bodies corporate).
The Government is proposing the following changes:
- Registration. A person would be able to present an application to register an LP only if they are supervised under money laundering regulations. This would limit the ability to make applications to formation agents, including law and accountancy firms.
Currently, anybody can apply to Companies House to register an LP. However, the Government notes that fewer than 20 limited partnerships in the last five years were registered “directly”, rather than by a formation agent. In reality, therefore, this is unlikely to hinder legitimate registrations. The main purpose of the reform would be to check the formation agent’s credentials.
- Principal place of business. An LP must have a principal place of business (“PPoB”). On registration, the LP must specify an address in the UK as its PPoB, but there is nothing to stop an LP moving its PPoB abroad once it has been registered.
The Government is proposing to require LPs to keep their PPoB in the UK (option A), or to provide a service address in the UK if they move their PPoB abroad (option B). In each case, the address would be confirmed annually by a confirmation statement and supporting evidence.
The first option may impact on private equity and venture capital funds. Some funds move their PPoBs outside the European Economic Area (EEA) so that they can be managed from outside the EEA for the purposes of the EU Alternative Investment Fund Managers Directive (AIFMD).
If the Government implements option A, the regulatory analysis underpinning the operation of these funds will be called into question and, as a result, they may need to be restructured.
- Annual confirmation. Every LP would have to file an annual confirmation statement confirming that its information on the public register is correct. Although companies must file confirmation statements, there is currently no such requirement for LPs. The statement would cover the LP’s partners, the amounts they have contributed to the LP, and the LP’s PPoB.
- Accounts. The Government is also asking for views on whether LPs should be required to prepare accounts and file them at Companies House.
Currently, an LP is required to prepare accounts only if each of its general partners is either a limited company, or an unlimited company whose members are all limited companies. In practice, it is possible to maintain a shield of limited liability but avoid the requirement to prepare accounts by installing a limited liability partnership (LLP) as the LP’s general partner.
However, this would change if the Government requires all LPs to prepare accounts. Such a change may well remove one of the key advantages of choosing an LP over other structures and might encourage fund managers to start using non-UK vehicles (such as Luxembourg LPs) for their fund structures.
- Striking-off. Finally, Companies House would be able to strike LPs off the register where they fail to deliver the proposed confirmation statement. This would mirror Companies House’s compulsory striking-off powers for companies.
The consultation does not contain any proposals to give legal personality to English LPs.
The Government has requested responses by 23 July 2018.