Limited partnership reform proposed by UK Government’s latest consultation paper

imited partnerships (“LPs”), and in particular Scottish limited partnerships (“SLPs”), are a well-established building block in UK private equity, venture capital and alternative asset-management fund structures.  Under English law and under Scottish law, an LP must be formed by at least two partners, one of which must be a general partner (who has unlimited liability for any debts incurred by the partnership) and one must be a limited partner (who has limited liability but cannot engage in management activities).

SLPs have a separate legal personality, distinct from their partners (as is the case in the UK for a private limited company and a limited liability partnership).  As a key distinction between SLPs and LPs, English LPs do not have a separate legal personality.

The Government’s consultation paper published on 30 April 2018 (the “Paper”) highlighted the lack of transparency in the ownership of LPs (and, historically, SLPs): minimal applicable filing requirements means that beneficial ownership may be completely opaque.  The Paper highlights horror stories where SLPs were used as money laundering vehicles.

Since June 2017, SLPs have been required to provide information about their beneficial owners to Companies House.  SLP registrations have dropped as a result.

The Paper discusses and proposes certain changes to the law relating to LPs with the aim of improving transparency generally.  The most significant changes are briefly described below.

Registration of LPs

Currently, LPs can be registered by submitting form LP5 to Companies House.  The proposed reform would require anyone who applies to register an LP to provide evidence of supervision under UK anti-money laundering regulations.  If the applicant does not disclose that information, or the information cannot be verified, the application would be refused.  This would mean that applications for registration could no longer be made by individuals because they are not ‘supervised’ for anti-money laundering purposes, and so all applications would need to be made by formation agents.

Requirement for business or service address within UK

LPs would be required to do business or maintain a service address in the UK.  The Paper discusses two alternative approaches:

• The LP’s principal place of business would need to remain in the UK. This would enable competent authorities to communicate with the LP and if needed serve proceedings on the LP.  Moreover, LPs would be required to return an annual confirmation statement to Companies House which would confirm or update the principal place of business (analogous to a private limited company’s requirement to file an annual confirmation statement at Companies House).  It is important to note that the confirmation statement would have to be accompanied by evidence of real commercial activity at the LP’s service address.
• The alternative proposal would be to allow the LP to have a principal place of business outside the UK whilst maintaining a service address in the UK. The LP would still be required to file a confirmation statement confirming or updating the service address and principal place of business.

Annual confirmation statement

As highlighted above, as proposed, LPs would be required to file a confirmation statement at Companies House. SLPs have been required to do this since June 2017.  Note that the confirmation statement would include the sum contributed by each LP and whether or not that sum has been paid in cash

Accounts

The Paper outlines the Government’s interest in establishing a case for LPs to follow the same (Companies Act) requirements set out for private limited companies as regards preparing and submitting accounts to Companies House

Strike off

The Paper discusses the merits of strike off for LPs and draws attention to the fact that currently long dormant LPs remain on the register indefinitely.  As proposed by the Paper, Companies House would be able to strike off LPs in circumstances that mirror those in place for private limited companies (such as where they have failed to submit a confirmation statement or their accounts on time).

The Government has decided not to carry forward proposals made in 2003 by the Law Commission and will focus instead on implementing the proposals outlined in the Paper.

The consultation initiated by the Paper will officially close on 23 July 2018.  We will be closely monitoring the outcome and expect to see legislation on some if not all of the issues outlined in the Paper forthcoming from Parliament in due course.

Humphreys Law