English and Scottish limited partnerships formed under the Limited Partnerships Act 1907 (the 1907 Act) are the most commonly used structure for European private equity and venture capital funds and a high proportion of UK limited partnerships are used as fund vehicles. However, the 1907 Act regime was long criticised as entailing unnecessary administrative requirements, complex “work-arounds” to certain overly restrictive requirements and a less certain regime for limited partners than the partnership codes in certain other legal centres.
In July 2015 the Government consulted on possible changes to the 1907 Act regime for private investment vehicles and responses were generally positive. The proposed reforms have now been implemented with effect from April 2017. These reforms (summarised below) bring the regime for UK partnerships much more into line with those of other legal centres such as Delaware, the Cayman Islands and the Channel Islands, reducing administrative requirements and enabling documentation to be simplified.
Managers of UK fund structures will want to consider the regime for future funds (and potentially also for certain existing ones) and any overseas managers who may have been deterred from UK vehicles in the past may now want to look again at the available options.
These changes will be applicable to any limited partnership established in England or Scotland which registers as a “Private Fund Limited Partnership” (PFLP).
A limited partnership may register as a PFLP at or at any time after its establishment provided that it is a collective investment scheme for FSMA purposes (a CIS) or would be a CIS but for the availability of an applicable exemption. (Essentially this should make the regime available for all investment partnerships, including those for investment solely within a corporate group.)
- The introduction of a “white list” of permissible activities for limited partners which will not be treated as “taking part in business” and therefore will not bring a risk of loss of limited liability;
- Removal of certain duties upon limited partners (unless the partnership agreement provides otherwise);
- Removal of the requirement for limited partners to make any capital contribution, with partners being free to contribute capital or loans (or to make no contribution);
- Removal of the prohibition upon the return of capital prior to winding up;
- Removal of the requirement to register the amount of capital contributed, the purpose of the partnership and its duration or term;
- Removal of the requirement for a court order to wind up a limited partnership where the general partner has been removed; and
- Removal of the need to “Gazette” transfers of limited partner interests (the requirement will remain for the change of the status of an interest from a general partner interest to a limited partner interest).