On 30 April 2018, the Department for Business, Energy & Industrial strategy (BEIS) published a consultation paper on the reform of UK limited partnership law. The proposed amendments will affect all UK limited partnerships (UKLPs), including private fund limited partnerships (PFLPs) and irrespective of whether they are registered in England and Wales, Northern Ireland or Scotland. They will not affect LLPs created under the Limited Liability Partnership Act 2000.
The consultation was triggered by evidence that the rise in the number of registrations of Scottish limited partnerships may be linked to their misuse in the furtherance of money laundering activities (owing to their separate legal personality). Since UKLPs continue to perform an important role in private fund structures used by private equity, real estate and infrastructure managers, the reforms are intended to mitigate this risk in the future. They also reflect the desire bring the law in this area more in line with the law governing limited companies.
What are the proposed reforms?
1. UKLPs must have a connection with the UK
Unlike UK companies, which must maintain a UK registered office, there is currently nothing in the existing legislation which requires UKLPs to maintain a connection with the UK post initial registration. To reduce the risk of money laundering or other criminal activity, BEIS has looked at two alternative options:
- Option A: a requirement that a UKLP’s principal place of business (PPoB) must remain in the UK; or
- Option B: allowing a UKLP to relocate its PPoB outside the UK after its principal registration, provided it maintains a permanent UK service address.
Critically, this means that non-compliance with official notices sent to the UKLP’s PPoB (option A) or service address (option B) could ultimately result in the UKLP being struck off the register (see below in relation to a registrar’s powers to strike a UKLP off the register).
There are often justifiable reasons why a UKLP may want to relocate its PPoB outside of the UK, for example where the manager favours a UKLP for its flexibility and investor familiarity, but also wants a structure either not subject to the full scope of the AIFMD, or which takes advantage of certain other tax or regulatory advantages by having a non-UK based PPoB. The requirement for a UK-based service address (option B) would therefore seem to achieve the right balance of addressing the perceived money laundering risk whilst at the same time not preventing legitimate business practices.
2. Requirement for a confirmation statement and accounts
Unlike the Companies Act 2006, the Limited Partnerships Act 1907 does not impose any regular reporting requirements on UKLPs unless they are categorised as “qualifying limited partnerships” under The Partnerships (Accounts) Regulations 2008 (there are currently only limited reporting requirements on Scottish LPs). BEIS therefore proposes to include an obligation on all UKLPs to provide a statement confirming that the information on the register is correct. This will include details of the UKLP’s PPoB, its general and limited partners, its service address (option B above); and limited partner contributions.
The consultation does not propose any specific exceptions to these reporting requirements. The BEIS does, however, ask respondents to consider whether general partners should be subject to different reporting requirements to limited partners, and whether all limited partnerships should be required to file an annual confirmation statement. We would expect that any requirement for PFLPs to confirm limited partner contributions would be unwelcomed by industry.
BEIS is also seeking views on whether there is a case for requiring UKLPs to prepare accounts and reports in line with the requirements for private companies, as is already the case for qualifying partnerships.
3. Power to strike UKLPs off the register
Currently, the registrar has no power to strike a UKLP off the register, including in circumstances where the UKLP has in fact been voluntarily dissolved – the register will still show it as being ‘active’.
BEIS proposes to grant the registrar the same powers to strike a UKLP off the register as it currently has in respect of limited companies – for example, where the UKLP has been dissolved or where it fails to deliver a confirmation statement (which may indicate to the registrar that it is no longer carrying on a business or in operation).
Before striking the UKLP off the register, the registrar would be under an obligation to make enquiries with the UKLP at its PPoB / service address and give notice of the intention to strike the UKLP off the register in the relevant Gazette and on the public record of the partnership.
BEIS has noted that safeguards against a strike off being enacted in error could be implemented (for example, by giving the registrar the power to restore the UKLP back to the register).
This seems like a positive update.
4. Registration applications for UKLPs must be submitted by those registered with an AML supervisory body
Under the proposals, anyone presenting an application for registration of a new UKLP would be required to provide evidence of supervision under money laundering regulations. If the presenter did not disclose the necessary information, or if it could not be checked, then the application for registration would be refused.
In practice this would mean that (i) no applications could be made to the Registrar directly by individuals; and (ii) a Trust or Company Service Provider (“TCSP”) (as defined by the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017), will need to be used to register a new partnership.
TCSPs can include management and chartered accountants, lawyers and legal advocates and those offering registered office services as a company director or secretary. Under the Money Laundering Regulations, all TCSPs must be supervised by an appropriate body in order to legally act as a TCSP.
BEIS will be considering whether and in what form it will accept information from presenters supervised by supervisory bodies in other jurisdictions having similar AML requirements to the UK.
When are any reforms likely to take effect?
Responses to the consultation are requested by 23 July 2018. Depending on the outcome of that process, BEIS intends to legislate “as soon as Parliamentary time allows”.
In the consultation paper, BEIS notes that it will need to carefully consider communications and transitional arrangements for existing UKLPs.