On 23 July, HM Treasury published a consultation paper on proposed changes to UK limited partnership law. The proposed changes are designed to ensure that private funds which are structured as limited partnership can be structured flexibly and avoid incurring unnecessary costs and administrative burdens and to enhance the UK’s competitiveness as a centre for fund domicile.
The changes are proposed to be made by way of a legislative reform order, a draft of which was published alongside the consultation paper.
The proposed changes will apply to “private fund limited partnerships”. These are limited partnerships which are collective investment schemes under FSMA which are not authorised by the FCA and which are constituted by a written agreement.
The draft order sets out a process under which both new and existing limited partnerships may be designated as a private fund limited partnership on the register of limited partnerships. An existing limited partnership can apply to be designated as a private fund limited partnership within 12 months of the draft order coming into force.
Summary of main proposed changes
Registration, notification of ongoing changes and removal from the register
The registration process for a new limited partnership will be made simpler because there will be no requirement to requirement to register details of limited partner capital contributions, the term of the partnership or the general nature of the partnership’s business with Companies House. There will also be no ongoing requirement to notify Companies House of changes to these details during the life of a partnership.
The draft order removes the requirement to advertise any assignment of a limited partner’s interest in a partnership or any change in status as a result of a general partner becoming a limited partner.
It is not currently possible to remove a limited partnership from the register when it has been dissolved or has otherwise become inactive. This means that the register becomes progressively out of date and that the names of dissolved partnerships cannot be used again. The draft order gives the registrar the ability to remove a partnership from the register on application by the partnership or where the partnership is no longer operating.
Under the current rules, a limited partner may not “take part in the management of the partnership business” or it will be liable for all of debts and obligations of the firm while it takes part in the management as though it were a general partner. However, there is no express statement what actions are, or are not, considered to amount to taking part in the management of the partnership business.
The draft order proposes a non-exhaustive “white list” of permitted activities that a limited partner in a private fund partnership will be able to undertake without being considered to be taking part in the management of the business, and therefore without risking its limited liability. These activities include:
- taking part in decisions about investments by the partnership and partnership borrowings
- taking part in decisions about the general nature of the partnership business
- enforcing rights under the partnership agreement
- acting as a director, member, employee or officer of, or being a shareholder in, the general partner or any other person appointed to manage or advise the partnership
- appointing or nominating a person to represent the limited partner on a committee
- consulting or advising the general partner, or any other person appointed to manage the partnership, about the affairs of the partnership
- taking part in a decision authorising any action which the general partner proposes to take.
A limited partner will no longer be required to make a capital contribution to the partnership. A limited partner will also be able to withdraw capital without being liable for the debts and obligations of the partnership up to the amount withdrawn.
The current requirement that the general partner must wind up a partnership unless a court order is obtained will be removed. Instead, the partners will be able to agree among themselves who should wind up the partnership.
Exemption from certain statutory duties
Limited partners will no longer be subject to the statutory duty to render true accounts and information about the partnership under section 28 of the Partnership Act 1890 or the duty to account for profits made in a competing business under section 30 of the 1890 Act.
No introduction of separate legal personality
The consultation paper confirms that the government remains committed to exploring whether English limited partnership should be allowed to have separate legal personality but states that further work is required to explore the implications and legislative changes which would be required to do this.
The consultation paper seeks responses on 13 specific questions relating to the proposed changes. Responses should be submitted before the consultation period closes on 5 October 2015.