Amongst other things, the Bill proposes some significant changes to the Limited Partnerships Act 1907, the principal legislation governing the use of limited partnerships in the UK (UK LPs). Of particular note for private fund managers who use UK LPs in their fund and investment structures, the proposals include:

• a requirement for all UK LPs to maintain a “registered office” in the UK, even if their principal place of business is outside the UK;
• a power for HMRC to require the preparation of audited accounts for a UK LP (in such form as HMRC may require) and for those accounts to be delivered to HMRC;
• increased filing obligations, including a requirement to file an annual confirmation statement at Companies House as well as requirements to notify Companies House of the names, dates of birth, residential addresses and countries of residence of individuals who are partners or representatives of general partners, and to keep the notified information up-to-date; and
• new requirements relating to the dissolution of UK LPs, as well as provisions allowing for Companies House to remove UK LPs from the register in certain circumstances, and for the reinstatement of UK LPs incorrectly removed from the register.

Failure to comply with the new obligations will in most cases be a criminal offence, with punishments in the most serious cases including imprisonment. The intention is for these new requirements to apply to existing UK LPs, with a six-month transition period applying where relevant.

Commentary on the proposals

In many respects, these proposals have an administrative flavour: they increase the operational burdens of establishing and operating UK LPs, but do not on the surface appear to be a radical overhaul of the regime for UK LPs. A number of the changes have been discussed previously (such as the introduction of a formal process for removing dormant limited partnerships from the register) and a number of filing and “transparency” type changes are obviously a reaction to previous criticisms of the UK limited partnerships regime, which claimed that limited partnerships are a popular vehicle for obfuscating true beneficial ownership.

However, if implemented in their current form, these proposals could have significant consequences for certain private fund managers:

1. UK LPs with a non-UK principal place of business

Based on existing FCA guidance, a UK LP with, for example, a Guernsey general partner (and thus a Guernsey principal place of business) would be classified as a non-UK AIF. This guidance is predicated on the fact that a UK LP has no registered office in the UK (and so the default position is to look to where the general partner has its principal place of business). If, as proposed by the Bill, a UK LP falling into this category were now to be required to maintain a UK registered office, it is likely that it would be re-categorised as a UK AIF, with potentially material regulatory consequences.

2. HMRC power to obtain audited accounts

Most private fund managers already prepare audited accounts for their flagship fund vehicles and managed account structures (in the form agreed with their investors), and those that are full-scope UK AIFMs will be doing so in compliance with their obligations under the FCA rules (specifically, FUND 3.3). Consequently, they will hope that, if HMRC does exercise its power with respect to their UK LPs, it will not require them to prepare the accounts in a different form, resulting in a duplicate set of accounts and increased costs for investors.

The HMRC power would also extend to UK LPs for which private fund managers may not currently be preparing audited accounts (e.g. UK LPs used in carried interest or co-investment structures, or as holding or conduit vehicles). Any requirement to produce audited accounts for these types of UK LPs would clearly have cost implications.

3. Increased filing obligations

The proposals in the Bill would substantially increase the amount of information to be notified by private fund managers to Companies House. While information about dates of birth and residential addresses would not become publicly available, private fund managers will need to make sure they obtain this information from all individuals who participate either as partners in UK LPs or who are designated as representatives of general partner entities. They will need to implement robust policies to ensure this information is up-to-date: under the Bill’s proposals, for instance, the general partner of a UK LP (and the individual designated as its representative) would commit a criminal offence if it failed to notify Companies House of an individual’s change of address within 14 days. While this would affect all UK LPs, it will be particularly acute for UK LPs with large numbers of individuals participating as limited partners (e.g. carried interest schemes).

4. Dissolution of UK LPs

The proposals in this area are largely welcome, as they tackle one of the curious gaps in the existing regime for UK LPs: to date, there has not been a mechanism to remove UK LPs from the Companies House register, even once they have dissolved and been fully wound up. As proposed by the Bill, the dissolution of a UK LP must be notified to Companies House; there are also powers for Companies House itself to dissolve UK LPs that appear dormant and do not respond to notices sent by Companies House warning of impending dissolution.

However, it is not clear from the Bill what the consequences of notifying dissolution to Companies House would be. In a factsheet accompanying the Bill, the Government states that the purpose of this particular proposal is to “enable the Registrar of Companies [i.e. Companies House] to deregister LPs which are dissolved”. But there is nothing in the Bill on this point: the proposals are silent on how and when Companies House would go about deregistering a dissolved UK LP. This is important, as it is the fact of registration that turns an “ordinary” partnership into a “limited” partnership and, consequently, that confers limited liability on the limited partners. It will be critical to ensure that Companies House does not deregister a dissolved UK LP while the winding up phase is continuing (and which, as many private fund managers will know from past experience, can often take years to complete). If that were to happen, it would risk limited partners losing their limited liability before the partnership’s affairs are properly concluded – something which would likely diminish the attractiveness of using UK LPs in fund and investment structures.

We will continue to monitor the Bill’s progress through Parliament – it is scheduled for a second reading on 13 October – and provide further updates as and when there are developments.