Limited partnership law reforms: too much change too quickly?

UK limited partnership law reforms are like buses: you wait ages, then lots arrive at once. The legislation is over 100 years old and in the last few years, notable changes have been made. In 2017, the UK government created the private funds limited partnership regime. Those reforms crafted a vehicle more suited to its purpose, to ensure that the UK limited partnership could remain a market standard structure for private funds in Europe, able to compete with newer frameworks in places such as Luxembourg and France.

Shortly thereafter the government launched a call for evidence, having become concerned about a few instances of high-profile fraud using Scottish limited partnerships. Arguably, the concerns have been largely addressed by the introduction in June 2017 of the People with Significant Control regime, requiring registration of information about ultimate owners/controllers, and there has since been a decline in registrations of Scottish limited partnerships. The government recently followed up with a consultation setting out proposals for further reform to not only address the fraud concerns, but also to make wider-reaching changes.

Importantly, the government explicitly acknowledges that there is a continuing need to offer the limited partnership as a business entity, recognising they are a “critical building block” in UK fund structures. The most pertinent changes to address the purpose of the consultation are proposed reforms to registration requirements. In particular, persons who file registration forms with Companies House would have to provide evidence of their supervision by an AML body. This is to deter rogue formation agents who have been registering without appropriate supervision, but is intended to be a minimal additional burden for those acting lawfully.

Other proposals cause more concern, particularly a proposal to change the way the principal place of business concept works. There are currently no restrictions on UK limited partnerships moving their principal place of business outside the UK following establishment. The government is looking to increase the UK nexus of limited partnerships in line with company law requirements, and the consultation suggests two options. One would require a limited partnership’s principal place of business to remain in the UK. There would need to be “real commercial activity” taking place, which could be challenging for funds to evidence and would put UK limited partnerships at a disadvantage compared to those main alternatives, when used in international fund structures.

The other, more practical option would retain the existing rules, but introduce a requirement for a service address to remain in the UK where competent authorities could communicate with the partnership and serve proceedings.

For a vehicle which was largely unchanged since its creation in 1907, this is a lot of change in a relatively short period.

At a time when Brexit uncertainty and other drivers are prompting fund managers to relook at their structuring, it would be good to have clarity that limited partnerships will not be adversely affected by any changes resulting from this consultation. However, even with that assurance, other factors may mean many end up taking the Luxembourg bus instead.

Emily Harmsworth is counsel with Linklaters LLP

This article was published in the summer edition of Funds Europe

©2018 funds europe

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