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A Reformed Character; the Private Fund Limited Partnership

Thu, May 18, 2017

Partnership (cropped)

Until recently, much of the law relating to partnerships in the UK was contained in two statutes enacted over a century ago (the Partnerships Act 1890 and the Limited Partnerships Act 1907). With other jurisdictions such as Luxembourg offering comparably more flexible structures for private fund sponsors, the Government has sought to reform the law on partnerships in the hope that the UK may remain competitive in a post-Brexit investment market.

The Legislative Reform (Private Fund Limited Partnerships) Order 2016 (the Order) came into force on 6 April 2017. The Order creates a new partnership structure – the Private Fund Limited Partnership (PFLP). The PFLP is intended to provide the benefits of limited liability and transparency for investors as well as being more administratively and financially efficient than a traditional LP.

So what advantages does PFLP have for investors over a traditional LP?

Capital Contributions

Unlike under a traditional LP, there is no obligation on a limited partner (usually the investor) to contribute towards the capital of the PFLP. Limited partners who do contribute capital will be permit to withdraw it without incurring liability for debts and obligations up to the amount withdrawn.

“White List” Activities

An open-ended list provides that a limited partner in a PFLP may undertake certain activities without taking part in management of the partnership. This provides clarity for investors as to what activities they may carry on without risking losing their limited liability status.

Increased Administrative Efficiency

  • There is no obligation on limited partners to render accounts and account for profits from competing businesses as is required by the legislation relating to traditional LPs. This will likely be welcomed by many investors as many have historically viewed such duties as inappropriate to their passive investor role.
  • There are fewer reporting requirements that need to be notified to Companies House. Also a PFLP is not required to advertise changes in the Gazette, with the exception of the requirement to advertise when a person ceases to be general partner.

The Order is UK wide and thus extends to Scottish Limited Partnerships (SLPs) also. SLPs in particular have proven to be particularly attractive to investors. SLPs (unlike their English counterparts) enjoy a separate legal personality which enables them to enter into contracts and own property in their own name.

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