Partners in ordinary general partnerships and in limited partnerships should be cognisant of the European Union (Qualifying Partnerships: Accounting and Auditing) Regulations, 2019. These regulations apply, with some exclusions and modifications, the accounts and returns regime provided for in Companies Act, 2014 to “qualifying partnerships” for financial years beginning on or after 1 January 2020.
Revocation of 1993 Regulations
Prior to the commencement of the 2019 Regulations, the relevant regulations were the European Communities (Accounts) Regulations, 1993. The 1993 Regulations imposed obligations to file returns and audited financial statements on partnerships where all of the partners who did not have a limit on their liability (namely, in a general partnership all of the partners and in a limited partnership the general partners) were: (a) companies limited by shares or by guarantee, or (b) bodies not governed by the law of the State but equivalent to companies limited by shares or by guarantee or (c) any combination of the types of bodies referred to in (a) and (b). The 1993 Regulations are revoked by the 2019 Regulations save to the extent that they relate to the financial years of a qualifying partnership beginning before 1 January 2020. Instead, qualifying partnerships will be subject to the provisions of the Part 6 of Companies Act, 2014 (as modified by the 2019 Regulations in relation to qualifying partnerships).
Regulation 5 of the 2019 Regulations provides for two types of qualifying partnership. First, a general partnership, all of the members of which are: (i) limited companies (being any type of company the liability of whose members is limited), (ii) designated ULCs, (iii) partnerships other than limited partnerships, all of the members of which are limited companies or designated ULCs, (iv) limited partnerships, all of the general partners of which are limited companies or designated ULCs, or (v) partnerships, including limited partnerships, the direct or indirect members of which include any combination of undertakings referred to in (i) to (iv), such that the ultimate beneficial owners of the partnership enjoy the protection of limited liability. Secondly, a limited partnership, all of the general partners of which are: (i) limited companies, (ii) designated ULCs, (iii) partnerships other than limited partnerships, all of the members of which are limited companies or designated ULCs, (iv) limited partnerships, all of the general partners of which are limited companies or designated ULCs, or (v) partnerships, including limited partnerships, the direct or indirect members of which include any combination of undertakings referred to in (i) to (iv), such that the ultimate beneficial owners of the partnership enjoy the protection of limited liability. A “designated ULC” is a private unlimited company which is not exempt from the requirement to annex its financial statements to its annual return pursuant to Section 1274 of the Companies Act, 2014. This will inter alia include an unlimited company with a limited liability parent. The “ultimate beneficial owner” of a partnership or other undertaking is the natural person or persons who ultimately own or control, directly or indirectly, that partnership or undertaking.
The presence of foreign partners in the partnership will not necessarily bring it outside of the definition of “qualifying partnership”. Regulation 5(2) deems references to a limited company, a designated ULC, a partnership or a limited partnership to include any undertaking whether governed by the laws of Ireland or another country that is comparable to any of the foregoing. A foreign undertaking will be regarded as comparable to a limited partnership where it is a partnership or an undertaking comparable to a partnership and it has at least one member with limited liability and at least one member without limited liability. A foreign undertaking will be regarded as comparable to a limited company where all of that undertaking’s members have limited liability. Furthermore, in assessing whether an undertaking is comparable to a limited company, designated ULC, partnership or limited partnership, regard is to be had to whether the liability of persons holding shares in the undertaking is limited.
Application of Part 6 of Companies Act, 2014
Part 6 of Companies Act, 2014 sets out the obligations of Irish companies as regards annual returns, financial statements and their audit. Regulation 7 of the 2019 Regulations provides as follows:
“Subject to these Regulations, Part 6 of the Principal Act shall apply to a qualifying partnership as if it were a company formed and registered under the Principal Act subject to any modifications necessary to take account of the fact that the qualifying partnership is unincorporated.”
Part 4 of the 2019 Regulations then goes on to modify or disapply certain provisions of Part 6 of Companies Act, 2014 as they relate to qualifying partnerships. Amongst the sections of Part 6 of Companies Act, 2014 which are disapplied in relation to qualfiyng partnerships is Section 281 which places a general obligation on companies to keep adequate accounting records. The provisions of Part 6 of the 2014 Act will not apply to a qualifying partnership that is a credit institution or an insurance undertaking.
Partners should be particularly cognisant of Regulation 8 of the 2019 Regulations. Where Part 6 of the 2014 Act refers to the directors or to the secretary or to the officers of a company, it shall be construed as a reference to the members of a qualifying partnership. Duties, obligations or discretion imposed on, or granted to, a director, secretary or officer of a company shall be deemed to be imposed on or, granted to the members of a qualifying partnership. The ordinary understanding of the member of a partnership is a partner of the partnership. In the case of a limited partnership, the members of the partnership shall be its general partners. Regulation 6 of the 2019 Regulations contains further deeming provisions as regards the members of partnerships and limited partnerships which include other partnerships amongst their members.
Amongst the sections of Part 6 of the 2014 Act which are applied to qualifying partnerships is Section 343 of the Companies Act, 2014 which obliges companies to file annual returns to the Companies Registration Office. Section 343(4) which deals with the form which the annual return of a company is to take is modified in its application to qualifying partnerships. The annual return of a qualifiying partnership is to be in the form prescribed by the Minister for Business, Innovation and Enterprise. The Companies Registration Office advises that the relevant form is Form P1 which is available to download from its website. Form P1 requires less detail than Form B1 (the form of annual return to be filed by a company).
Application of other company law to qualifiying partnerships
The 2019 Regulations also provide for the application of Part 26 of the Companies Act, 2014 and the European Union (Disclosure of Non-Financial and Diversity Information by certain large undetakings and groups) Regulations, 2017 to qualifiying partnerships as if they were companies formed and registered under Companies Act, 2014. The former obliges companies meeting specified criteria to report payments made to the governments. The latter obliges companies meeting specified criteria to include in the directors’ report a report on non-financial matters (namely, environmental matters; social and employee matters; respect for human rights; and bribery and corruption) and on each “large traded company” (as defined in the 2017 Regulations) to include a diversity statement in its corporate governance report.
Part 8 of the 2019 Regulations prescribes offences on the part of a qualifying partnership where it fails to comply with the provisions of Companies Act, 2014 which are applied to it by virtue of the 2019 Regulations. The members of a qualifying partnership should note that where any such an offence is committed with the consent or connivance or was attributable to the neglect of any such member or a director of such a member or a person purporting to act in either such capacity, that person, along with the qualifying partnership, shall be guilty of an offence and may be proceeded and punished as if that person were guilty of the offence committed by the qualifying partnership.
The 2019 Regulations increase and amend significantly the accounts filing requirements for qualifying partnerships, as defined under the Regulations, for accounting periods commencing on or after 1 January 2020. The amendments will inevitably give rise to increased transparency in relation to the accounts of such qualifying partnerships and this is consistent with recent European initiatives, which has led to increased filing requirements for ‘designated ULCs’.
Partners in qualifying partnerships and their advisers should note the amendments carefully.