New UK Limited Partnership For Private Funds

From 6 April 2017 a new form of limited partnership came into existence with the introduction of a “private fund limited partnership (PFLP).

The Government first announced its intention to legislate for a new type of partnership at Budget 2016 and finally the Legislative Reform (Private Fund Limited Partnership) Order, SI 2017/514 introduced this new type of partnership structure from 6 April 2017. This modernises the Limited Partnership Act 1907 and is intended to make the limited partnership structure more attractive for asset managers and investors.

The new structure aims to reduce various financial administrative burdens for the managers and general partners as well providing greater legal certainty for limited partners.

The following are key points to note in relation to PFLPs.

• PFLP will be available to private investment funds established as limited partnerships such as private equity and venture capital funds.

• A limited partnership (LP) must be constituted by an agreement in writing and be a “collective investment scheme” to be designated as a PFLP. The definition of a collective investment scheme is in section 235 of the Financial Services and Markets Act 2000.

• An existing limited partnership may choose to apply for PFLP status if it fulfils the above conditions by application to Company’s House in the UK.

• A new LP may apply to Companies House for registration as a PFLP.

Benefits of becoming a PFLP

• Non-exhaustive “white list” of permitted activities. In a traditional LP a limited partner may not take part in the management of the LP’s business without becoming liable for the LP’s debts. For PFLPs there is a list of activities a limited partner may carry on without being considered to take part in the management and without losing its limited liability.

• The removal of capital contributions – unlike with traditional LPs, in a PFLP limited partners are not required to contribute any capital. Any capital contributed may be withdrawn at any time.

• Removal of some statutory duties – certain duties applicable under the Partnership Act 1890 have been disapplied for limited partners of a PFLP; for example, limited partners will not need to render accounts or other information to other partners and will not need to account for profits made in competing businesses.

In addition to the above, PFLP has no obligation to file a Gazette notice on a transfer of interest by a limited partner and is not required to file notices at Companies House of changes of the partnership business etc. In addition, the requirement for limited partners to obtain a Court order to wind up a limited partnership where there is no general partner does not apply to PFLPs.

Judging from the content of the Regulations, there do not appear to be any disadvantages with funds registering to be designated as a PFLP and so it is expected that many funds will take advantage of this new structure.