BEIS call for evidence on limited partnerships: what is the government's focus?

Published on 7th Jun 2017

On 17 March 2017 the call for evidence by BEIS in support of its review of UK LPs came to a close.

As part of the call, BEIS acknowledged concerns that some LPs registered in Scotland are being used for criminal activity and noted that the registration of LPs in Scotland (when compared to England, Wales and Northern Ireland) has been on the increase.

What are the concerns?

Unlike the rest of the UK, in Scotland an LP is recognised as a legal entity which (amongst other things) can enter in to contracts, borrow money and own property. Despite having separate legal personality, Scottish LPs are tax transparent. This means tax authorities look through the LP and partners are taxed on their respective partnership income.

It has been alleged that this can lead to partners being invisible when the entity enters into contracts, including opening bank accounts. Those calling for a review of the law governing LPs argue that LPs are being run by partners who are unknown to enforcement authorities and so it’s more difficult to take rapid action and investigate due to the difficulty of tracking the individuals behind the entity. The requirements of the Persons with Significant Control (PSC) register do not currently apply to LPs. It is therefore argued that LPs are lightly regulated, with very few requirements to publish information relating to the LP or its partners.

Through this call for evidence, BEIS sought to explore the reasons behind the increase in LP registration in Scotland and to better understand the value that LPs bring to the UK economy as a whole.

Transparency and updates to the PSC register

Views and information were requested as to how the wider LP framework operates and whether any changes, especially in relation to the transparency regime, should be made to prevent the use of LPs as an enabler to possible criminal activity.

In November last year, BEIS issued a paper looking at the transposition of beneficial ownership requirements under the Fourth Money Laundering Directive (4MLD) and what changes would be required to be made to the UK PSC regime to complete transposition. As part of that work, BEIS considered whether to bring Scottish LPs within the remit of the PSC register which would achieve the transparency objectives considered above. UK LPs were outside the remit of that consultation on the basis that they do not have legal personality and were therefore outside the scope of 4MLD.

On 19 April 2017, Companies House published its business plan for 2017-2018, its strategic plan for 2017-2020 and a press release titled ‘Changes to UK anti-money laundering measures’.  One of Companies House’s goals is to support the government’s commitment to make the UK the most transparent place in the world to do business. Specifically with regard to enhanced transparency in the context of those who beneficially own companies and other entities, Companies House confirmed that it will implement 4MLD at the end of June 2017 and make all necessary changes, including improving the accuracy and completeness of PSC data. In relation to Scottish LPs, Companies House confirmed that with effect from 24 July 2017, the PSC regime will be extended to active Scottish LPs and general Scottish partnerships where all the partners are corporate bodies. When PSC information is provided, the protection regime will become available.

Are there likely to be even more changes?

At the same time, BEIS has taken the opportunity to consider the possibility of wider changes to aspects of the LP regime, including:

  • LP registration – specifically, the extent to which an LP registered in the UK must maintain a presence here and the process for registering the dissolution of a LP;
  • Reporting – the benefit of annual reporting of accounts; and
  • Additional transparency requirements – including re-confirming the identities of partners or principal place of business and whether this level of transparency would have an adverse effect on LPs. 

Next steps

BEIS is currently analysing the evidence submitted to determine what, if any, further action may be required. Any formal proposals related to amendments of the Limited Partnerships Acts will be subject to further consultation and full Parliamentary scrutiny. Given the changes brought in on 6 April in relation to PFLPs [Link to PFLP article], the industry will be keen to get a sense of whether any future proposals increase UK LP accountability negating the reductions in the compliance and administrative burdens brought in by the PFLP regime.

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* This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

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