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Claire Cummings

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EQUITY ISSUES
 
Proposed amendments to the Limited Partnership Act 1907

The government has published a revised draft legislative reform order on proposed amendments to the Limited Partnerships Act 1907 (the ‘Order’) in respect of private investment funds. The purposes of the draft Order is to establish a private fund limited partnership (PFLP) structure as a new form of limited partnership. The PFLP will be available to non-retail funds, such as venture capital and private equity funds, which are structured as limited partnerships. The aim is to reduce the administrative and financial burdens that impact these funds under the current LP structure.

A limited partnership may be designated as a PFLP only if it is constituted by an agreement in writing and is a collective investment scheme.

Background

The LP structure is the most commonly used structure for venture capital and private equity funds, as well as various other types of private fund. Both the 1907 Act and the Partnerships Act 1890 have remained largely unchanged and have not therefore been able to accommodate fully the needs of private funds.  Further, other jurisdictions, such as Luxembourg and the Channel Islands have either already introduced or are in the process of introducing laws to allow venture capital and private equity managers to structure their funds in more flexibly and in the most cost-efficient manner. The government has concluded that, without changes to the current LP legislation, the UK risks becoming a less attractive domicile comparatively for private funds.

HM Treasury consulted on changes to the Limited Partnerships Act 1907 in July 2015 and prepared a draft Legislative Reform (Limited Partnerships) Order 2015 for comments at the same time. The government responded in March 2016 and the revised draft Order differs in numerous respects from the initial draft, mainly to reflect the government’s response to comments received in connection with the consultation.

The draft Order

The changes proposed to the Limited Partnerships Act 1907 include the following:

1. The removal of the requirement for limited partners to contribute capital to a PFLP;

2. Article 2(4) enables limited partners to appoint a person to wind up a PFLP if there is no general partner available to do so and enables the partners to make an agreement as to winding up of a PFLP;

3. The introduction of a new Article 2(4)(e), which would amend the 1907 Act so as to disapply section 36(1) of the Partnership Act 1890 (rights of persons dealing with firm against apparent members of firm) where a partner in a PFLP ceases to be a member of the firm;

4.Amendments to the list of activities that a limited partner may undertake without being considered to take part in the management of the business. This will increase clarity about situations in which a limited partner’s actions risk losing limited liability status.  This is not an exhaustive list and does not affect the position for other actions or limited partnerships;

5. Amending, for the purpose of determining which funds are covered by the PFLP regime, the definition of “collective investment scheme” so as to ignore section 235(5) of FSMA 2000, thereby allowing LPs which would meet the definition but for one of the exceptions to fall under the PFLP structure;

6. Replacing the previous requirement for a solicitor’s certificate with a requirement for the general partner to confirm that the partnership fulfils the requirements on application to become a PFLP;

7. Removing the one year transition period, so that an LP will always be able to apply for PFLP status if it fulfils the criteria;

8. Removing provisions in the original draft order that would have enabled the registrar to strike PFLPs off the register in certain circumstances; and

9. Making consequential amendments to the forms to be used for applications and notifications to the registrar. Set out in a new schedule, alongside revised Forms LP5 and LP6, are new Forms LP7 (Form for Registration of Limited Partnerships to be Designated as Private Fund Limited Partnerships) and LP8 (Form for Designation of Existing Limited Partnerships as Private Fund Limited Partnerships).

Next Steps

The government is recommending that the Order and accompanying explanatory document be laid in Parliament under the affirmative resolution procedure. The intention is that the order will come into force on 6 April 2017.

The explanatory document accompanying the draft Order can be found here.

This document is for general guidance only. It does not contain definitive advice.