Prompted by a recent consultation, proposed changes to limited partnership law have been put forward by BEIS. The proposals will require legislative change which will affect all limited partnerships, including Scottish limited partnerships – which have been heavily scrutinised recently due to concerns about the structure being mis-used to facilitate criminal activity.
Limited partnership law has been around since 1907(!) and has seen little in the way of change. Although private fund limited partnerships (PFLPs) were introduced in 2017, limited partnership law is still viewed as outdated and the proposed changes should be welcomed. It is important to ensure that limited partnerships are not misused but this must be balanced with ensuring their appeal to legitimate business investors remains.
There will be a new requirement for a limited partnership to maintain a connection to the UK, along with new reporting and anti-money laundering requirements, and new strike-off powers for Companies House.
Maintaining a UK connection
A UK limited partnership will still be able to retain a place of business outside the UK without affecting its status. However, on application for registration the partnership must be able to provide a principal place of business (PPoB) in the UK. The partnership must then be able to demonstrate, on an ongoing basis, that it maintains a connection to the UK. This can be done by:
- retaining its PPoB in the UK;
- showing that it is carrying out legitimate business in the UK; or
- showing that it is engaging an agent subject to UK anti-money laundering supervision, the address of which will be used as the partnerships service address.
The partnership must also inform Companies House if there is any change in its PPoB or if there is any change in its ongoing connection status. BEIS is still considering the evidential requirements for demonstrating compliance with this change.
New reporting requirements
Limited partnerships will be required to file an annual confirmation statement at Companies House to confirm that all filed information remains correct.
On initial registration, and now as part of its annual confirmation statement if there are any changes, a limited partnership must provide:
- contact information for all limited and general partners;
- the nationality and date of birth of all those partners; and
- a SIC code identifying the nature of its business.
BEIS will also consider whether limited partnerships should be required to provide beneficial ownership information of corporate partners that do not already produce a PSC register. One proposal not taken forward from the initial consultation is the requirement for partnerships to prepare accounts and reports in the same way as limited companies.
Anti-money laundering requirements
It will become compulsory for all new registration applications to include evidence of the partnership’s registration with an anti-money laundering supervisory body. Any overseas applicants will also be subject to ‘equivalent standards’ but BEIS have acknowledged that this may mean overseas applications are limited to those from within the EEA. Any list of overseas jurisdictions deemed to have equivalent standards will be reviewed on an ongoing basis. Ongoing filings will not be affected by this requirement and it will only apply to initial registrations.
This change should prevent the creation of limited partnerships by sole individuals or unregulated organisations who may intend to use the partnership for illegitimate activity. Only authorised bodies will be able to establish and register a partnership and this should help clamp down on it being used for criminal enterprise.
Striking off limited partnerships
Companies House will be granted the power to strike limited partnerships off the register. This power will be subject to a ‘robust notification procedure’ relating to dissolved partnerships and those which are no longer in operation. BEIS will consider when it may be appropriate to restore a limited partnership.
The notification procedure should help to tackle some of the historical problems with striking limited partnerships off the register. There has always been a risk that limited partners could incur unlimited liability on removal of the partnership and they can often be removed without the knowledge of the partners.
What about PFLPs?
It has not been confirmed whether these proposals will also apply to PFLPs. One of the key features of a PFLP is its more streamlined filing requirements. If these new requirements are to apply to PFLPs, it could make the UK a less attractive jurisdiction for investors. Overseas investors are not likely to want their contact details and other personal information available publicly online.
This blog post was written by Elliot Gibson. For further information, please contact Sophie Brookes:
Sophie Brookes, partner, Corporate team
T: 0161 836 7823