The government has recently proposed a draft Order to amend the Limited Partnerships Act 1907 (the “Act”) to introduce a Private Fund Limited Partnership (“PFLP”) structure. It is due to come into force on 6 April 2017.
The Order is part of a package of reforms that the government has committed to in relation to its Investment Management Strategy, with the purpose of improving the UK’s competitiveness as a centre for the asset management industry.
The new PFLP structure will be available to private investment funds which are structured as limited partnership, ie private equity funds. The government believes that it will reduce the administrative and financial burdens that impact these funds under the current limited partnership structure.
Reasons for the amendments to the Act
- The 1890 Act and the 1907 act have remained largely unchanged and are not modern enough to accommodate the needs of private equity and venture capital funds.
- Other countries are adopting laws to ensure that private funds can be more flexible and the UK will become less attractive to such funds if it does not update its legislation.
The consultation process
A consultation process was conducted in July 2015 with input from key stakeholders in the industry. The conclusion was that they should proceed with the proposals to the draft Order.
Although the respondents to the consultation were in unanimous agreement that the reforms should go ahead, there was some disagreement about the finer details and the government has made the following changes in response:
- There was a preference for the introduction of the two-tier system for limited partnerships and PFLPs. Whereby the process for registering a PFLP on the Companies House register will differentiate these types of partnerships from the remaining limited partnerships.
- The Government is replacing the requirement that a solicitor would be required to certify that a partnership fulfils the requirements to become a PFLP – now the general partner can do this.
- The Government had initially proposed a strike-off procedure, but respondents had concerns that limited partners would lose their limited liability status, and so it has been decided not to go ahead with this proposal at present.
- The Government is going to provide further detail on the intention to introduce a “white list” (a list of activities which limited partners can undertake without being regarded as taking part in the management of the partnership). The intention is that limited partners should be given sufficient powers to monitor and assess the performance of investments and to approve the actions of the general partnership, but to not give them the power to act on behalf of the partnership.
Financial and administrative benefits the draft Order will bring
- The introduction of the “white list” means limited partners will no longer have to take legal advice on what constitutes “management of the partnership business”.
- It removes the requirement for capital contributions by limited partners in PFLPs.
- It removes the requirement for a court order for PFLPs and grants the limited partners the power to authorise a third party to wind up the partnership on their behalf.
- There are reduced administrative requirements relating to having to advertise certain changes to the partnership in the Gazette and additionally the requirement to notify the public of certain changes to the limited partnership, ie. the term of the limited partnership.
The draft Order makes no changes to the regulatory framework for investment management firms and the Financial Conduct Authority remains responsible for the regulation of the sector.
There are no perceived negative impacts to the introduction of this amendment to the legislation and, indeed, private equity firms will experience monetary benefits. Clarifying some of the legal implications of limited partnerships will bring savings in terms of legal advice required and additionally there will be less administrative burdens.
This measure should make it more attractive for collective investment schemes to structure as a PFLP. It should also result in more fund managers domiciling investment funds in the UK, increasing employment opportunities and growth in the UK.
To access further details on this legislation, please click here.
For any further help or information in relation to PFLPs, Cleveland & Co, your External In-house Counsel are here to help.
