Update: Bermuda's Partnership law received a significant update with the enactment of the Partnership Amendment Act, 2015, the Exempted Partnerships Amendment Act, 2015, the Limited Partnership Amendment Act, 2015 and the Companies Amendment Act, 2015 (together, the "Partnership Law Amendments"). The Partnership Law Amendments have been in effect since December 2015 and Bermuda partnerships and companies are now able to avail themselves of the provisions as described below.
Following extensive consultation with the public and private sector, the Partnership Law Amendments are a major re-working of Bermuda's partnership product, further enhancing the overall appeal of Bermuda as a premier domicile for partnership formation.
The changes introduced by the Partnership Law Amendments fall into two main categories: (1) innovative changes which further enhance the Bermuda partnership as a premier offshore product in the investment fund, private equity, holding entity and financing spaces and (2) market and investor driven changes which add flexibility to the management of Bermuda partnerships.
1. Bermuda Innovations
Conversion from exempted limited partnerships to exempted companies and from exempted companies to exempted limited partnerships
Following the Partnership Law Amendments any exempted limited partnership which has elected to have legal personality under Section 4A of the Partnership Act, 1902 may convert to an exempted company under the Companies Act, 1981 and vice versa. Statutory conversions allow a fund or business to change its legal form with minimum disruption and are expected to see widespread use by clients looking to change an entity's status for legal or tax reasons, to take advantage of certain benefits available to another form of entity, to attract venture capital investment, or to change management or governance provisions.
Registration by way of continuation in Bermuda and deregistration for continuation in another jurisdiction
The Partnership Law Amendments now allow a partnership established in certain jurisdictions other than Bermuda to be registered in Bermuda as an exempted and/or limited partnership by way of continuation from those jurisdictions, and to deregister from Bermuda where the partnerships propose to register by way of continuation in such jurisdictions.
Register of Partnership charges
A new streamlined charge registration process is now available to Bermuda partnerships which have elected to have legal personality. Bermuda is one of the few offshore jurisdictions which permit partnerships to elect to have separate legal personality and such partnerships are able to hold assets and grant security in their own name. Now, any person interested in a charge on the assets of such a partnership may apply to have that charge registered on a register maintained by the Registrar of Companies in Bermuda. On registration, to the extent that Bermuda law governs the priority of the relevant security, such security will have priority over any unregistered charges, and over any subsequently registered charges, in respect of the assets which are the subject of the security. This innovation will be of interest to those clients looking to use offshore partnerships in transactions involving secured financing.
2. Market and Investor Driven changes
Extension of safe harbour provisions for a limited partner acting on boards and committees
The list of "safe harbour" activities which a limited partner can carry out without taking part in the management of a limited partnership - and, therefore, without losing its limited liability status - has been extended. A limited partner can now consult or advise a general partner with respect to the business of the limited partnership, but will not be taking part in the management of the limited partnership if the limited partner, or a representative of the limited partner, serves on a board or committee of a limited partnership, a general partner, the limited partners (or any class or category of those partners) or any person in which the limited partnership has an interest.
Establishment of boards and conferring the benefit of exculpation and indemnity provisions on board members
Unless specified in the partnership agreement to the contrary, members of boards and/or committees of a limited partnership shall be deemed to have notice of, and shall have the benefit of provisions expressly contained in the partnership agreement in favour of such members even if they are not party to the partnership agreement. As a result, such members will now be able to have the benefit of indemnity and exculpation clauses expressly contained in any such partnership agreement.
Duty of good faith
The Partnership Law Amendments provide that a general partner shall at all times act in good faith and in the interests of the limited partnership unless there is an express provision in the partnership agreement to the contrary. By contrast, the Partnership Law Amendments now expressly provide that a limited partner does not owe any fiduciary duties to the limited partnership or to any other partner when exercising any of its rights or authorities or otherwise in performing any of its obligations under the partnership agreement. This is analogous to the standard applicable to a shareholder of a Bermuda company. Further, subject to any express provisions of the partnership agreement to the contrary, membership of any board or committee of a limited partnership does not of itself impose any fiduciary duties to the limited partnership or any other partner.
Keeping of the register of limited partners
Under Bermuda law, the general partner of a limited partnership is required to maintain a non-public register of limited partners which includes the name and address of each limited partner and the date on which the person became and ceased to be a limited partner. The Partnership Law Amendments now clarify that the Register can be closed for inspection by express agreement between partners. This will be particularly attractive to private equity clients who are seeking to protect and maintain their privacy.
Following the broad principles in the Bermuda Companies Act, it is now permissible for a Bermuda exempted partnership to have a secondary name. The name can be in any language not using Roman script and is in addition to the primary name.
In closing, the Bermuda Partnership Law Amendments are expected to have particular appeal to sponsors of private equity vehicles and investment fund formation. In particular, a number of the amendments will facilitate the creation of parallel fund structures with other jurisdictions. The Bermuda government's commitment to innovation and communication with the private sector continues to encourage the promotion and maintenance of Bermuda as a premier jurisdiction from which to conduct business. The Partnership Law Amendments are an example of this proactive process, further enhancing Bermuda's status as a leading offshore financial centre.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.