On 30 April, the UK Government's Department for Business, Energy and Industrial Strategy ("BEIS") published a consultation on proposed reforms to UK limited partnership law. The reforms seek to address concerns that Scottish limited partnerships ("SLPs") have been used for improper purposes and the Consultation seeks views on the proposed reforms by 23 July, 2018. The proposals affect all UK limited partnerships (as detailed below).
Background to the Proposals
The publication of the Consultation follows BEIS's Call for Evidence published in January 2017. The responses to that Call for Evidence demonstrated that UK limited partnerships offer businesses a flexible business structure and perform an important role in the UK economy, including in the private investment fund sector. However, BEIS considered there was evidence that, in some contexts, SLPs were being used for improper purposes, which the reforms proposed in the Consultation seek to counter.
Which limited partnerships will be affected?
Whilst BEIS considers that the issues it identified involved the misuse of SLPs, it is proposing that the reforms affect all limited partnerships registered under the Limited Partnerships Act 1907 (the "LP Act"), not just SLPs. BEIS referred to this in its Call for Evidence where it referred to earlier consultations on reforming limited partnership law and stated that "now may be the time to look again to see whether Limited Partnerships need reform".
The proposals have implications for private funds structured as limited partnerships, both in terms of the fund vehicle itself and any carry or feeder partnerships in the fund structure, and also for other vehicles used in connection with private equity funds, such as co-investment vehicles. Accordingly, the investment fund industry should examine these proposed reforms and comment on them where necessary or desirable to avoid any detrimental impact on the sector or on the use of the UK limited partnership in fund structures.
The proposals cover the lifecycle of a limited partnership – from initial registration through to "striking off" a limited partnership.
Registration
Currently, formation agents are required under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the "AML Regulations") to be supervised by an appropriate anti-money laundering ("AML") body. However, there are currently no checks in place to ensure that formation agents registering limited partnerships under the LP Act are appropriately supervised pursuant to the AML Regulations.
The Consultation proposes that any person presenting an application to register a limited partnership under the LP Act must provide evidence that it is being supervised by an appropriate AML body. This would have the effect that applications could not be made by individuals (although this is apparently seldom the case).
The Consultation states that the proposal aims to ensure that presenters operating lawfully will be able to continue to do so with minimum additional burden. This is very important because the implementation of this proposal should not diminish the attractions of UK limited partnerships by reducing the speed, or increasing the costs, of registering them. BEIS has not stated what evidence would be required and it is considering what information would be required/accepted from presenters from other jurisdictions having similar AML requirements to the UK.
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