Farewell to the Limited Partnership Act 1907 - Update, April 2009
On 25 March 2009, the Department of Business Enterprise & Regulatory Reform ("BERR") confirmed, once again, the Government's intention to bring in legislation, aimed at modernising and simplifying limited partnership law.
In the light of the responses received to date, following the issue of its August 2008 consultation document on which we produced an earlier Focus Sheet, BERR does not feel in a position, at present, to proceed with the draft Legislation Reform Order but still believes there is broad support for many of the key proposals. As a result, the legislative timetable remains unclear, regarding the likelihood of the proposed changes coming into force on 1 October 2009, as was the original intention.
Organisations which have already participated in the consultation process include the British Venture Capital Association ("BVCA"), the Institute of Chartered Accountants and the Law Society and comments voicing concerns from the BVCA are set out below:
- Same-day registration: There should be a guaranteed same-day registration service in order to avoid any prolonged period when a limited partner does not enjoy limited liability status;
- Signature on application form: The general partner or the manager of the fund should be entitled to sign the form applying for limited partnership status on behalf of all the partners;
- Carrying on a business: Limited partnerships must “carry on a business” otherwise the partnership cannot exist. Clarification is needed, for example, on whether holding an asset for investment purposes is carrying on a business. This impacts upon partnerships structured to hold and receive carried interests. The status of feeder funds should also be clarified;
- Limited liability status for new limited partners: The registration of new limited partners should ideally follow the manner in which members are appointed to LLPs; that is, becoming a partner is dealt with in accordance with the wishes of such partners (limited liability would be conferred on the limited partners from that point) and such changes must be registered within 14 days. The current proposal states that a limited partner must wait until the registrar is able to register such partner before limited liability status is conferred – with the inevitable delays that are inherent in this process;
- Tax: The BVCA has asked for confirmation that the proposals (including the re-registration of existing limited partnerships) will not have any adverse tax consequences as far as HM Revenue & Customs are concerned;
- Transitional Period: The proposed transitional period of 2 years, during which time all existing limited partnerships should be re-registered, is arguably too short and should be 10 years given that this is the standard lifespan of most limited partnerships. The BVCA also wonders whether automatic re-registration is feasible;
- Name: The legislation should specifically state that the limited partnership can keep its existing name and simply add “LP” or “Limited Partnership” after it. This is not clear from the draft legislation;
- Management: The draft legislation includes a list of those matters which are not regarded as being management - a limited partner not being permitted to engage in any management activities because it would risk losing its limited liability status. The current list should be stated to be non-exhaustive to allow for greater flexibility. Equally, the BVCA has also suggested that the list be expanded or widened in parts;
- Limited partners with no separate legal personality: Where a proposed investor does not have separate legal personality, there is a requirement to register all the constituents of that investor as partners in the fund (e.g. all of the individual trustees in a trust or all of the partners in an investing English and Welsh limited partnership). The BVCA is looking for a more commercial and sophisticated approach to registration and notification;
- Capital contribution: The BVCA wants the current definition to be clarified so that any loans advanced to the limited partnership are not inadvertently regarded as capital (and thus require registration);
- Offence of failing to register changes: The general partner should not be guilty of an offence of failing to register a change to the limited partnership of which it was not aware.
The consultation document is located at http://www.berr.gov.uk/files/file47577.pdf
BERR’s response is located at http://www.berr.gov.uk/files/file50705.pdf
The various responses by key stakeholders are located at http://www.berr.gov.uk/files/file50724.pdf
Laytons’ earlier Focus Sheet is located at http://www.laytons.com/focus-sheets/focus-sheet---farewell-to-the-limited-partnerships-act-1907.asp
We would be happy to discuss these proposals with you or to discuss how relevant laws relating to the venture capital and private equity industry will impact upon your business generally. We will continue to keep an eye on these proposals and will produce a further Focus Sheet in due course, if necessary.
This Focus Sheet is offered on the basis that it is a general guide only and not a substitute for legal advice. Laytons cannot accept any responsibility for any liabilities of any kind incurred in reliance on this Focus Sheet. For specific advice on these issues, please contact your client partner or one of the team at the addresses set out below:
Contact Richard Kennett: email firstname.lastname@example.org
Contact Ben Crichton: email email@example.com
Contact Paul Caddy: email firstname.lastname@example.org
For PDF version of this focus sheet please click here