This month the Treasury published a consultation paper setting out its proposed amendments to the Limited Partnership Act 1907 (the LP Act). The Government’s aim is for these amendments to ensure that UK limited partnerships (LPs) remain the market standard structure for many private funds, particularly private equity and venture capital funds, through the removal of unnecessary costs and administrative burdens. The consultation closes for comments on 5 October 2015.
The main proposed amendments, which are intended to apply to UK “private fund LPs”, i.e. LPs which are formed as part of unauthorised collective investment scheme structures, are:
Private fund LPs would be designated as such on the register at the point of registration. Existing private fund LPs would be able to opt to become so designated within 12 months of this change coming into effect. The other proposed amendments set out in the consultation paper would apply to a private fund LP once it has been designated. Companies House would also have a new power to remove inactive private fund LPs from the register (i.e. similar to the regime already in place for UK companies).
On-going filing and notification requirements
In order to reduce administration and protect investors’ privacy, some details which must be specified when a private fund LP is first registered and again when such details change, would be removed. These details would include the amount of each limited partner’s capital contribution. The Government further proposes to remove the requirement to advertise in the Gazette if a general partner becomes a limited partner or if a limited partner assigns its interest in a private fund LP to another person.
The role, function and rights of limited partners
The Government has proposed a non-exhaustive list of activities which a limited partner may undertake without being considered to take part in the management of the LP’s business (and accordingly without losing its limited liability). The Government’s intention is to allow investors to monitor their investments without the uncertainty as to whether such monitoring risks losing their limited liability. The activities listed include:
- taking part in decisions about whether to allow a particular investment or type of investment or about whether the general nature of the LP’s business should change;
- approving the valuation of the LP’s assets;
- consulting or advising the LP’s general partner or appointed manager about the LP’s affairs or accounts; and
- appointing or nominating a person to represent the limited partner on a committee.
Some duties which apply to limited partners under the LP Act but which appear inconsistent to private fund investors (i.e. the duties to render accounts and information, and to account for profits made in competing businesses) would be removed in respect of private fund LPs.
In circumstances where the investors have exercised their rights under a fund’s partnership agreement to remove the fund’s sole general partner, the limited partners of a private fund LP would be allowed to agree among themselves who should wind up the LP. This would remove the current requirement for investors to apply for a court order in order to wind up the LP.
Obligations of and restrictions on limited partners in respect of capital
The LP Act requires all limited partners to make capital contributions (however small) and further requires that, if such capital contributions are withdrawn during the life of the LP, the limited partners are liable for the LP’s debts and obligations up to the amounts withdrawn. The Government does not believe that either requirement serves any purpose in respect of private fund investors, and accordingly proposes to remove both requirements for limited partners in private fund LPs.
Separate legal personality
This consultation does not include any amendments to allow UK LPs outside Scotland to elect to have separate legal personality. The Government has stated in this consultation that, as this would be a much more fundamental change to the law, further exploration of the implications of such a change will be required. The Government’s current position is that it remains committed to such further exploration.