The Private Fund Limited Partnership

By Mark Coppin

• On 6 April 2017, reforms to limited partnership law in the UK became effective. It creates a new vehicle for private funds known as a Private Fund Limited Partnership (“PFLP”).
• The new PFLP regime increases legal certainty for limited partners and aims to reduce financial and administrative burdens for the manager or general partner.
• The new vehicle is a long awaited reform of the Limited Partnership Act 1907 and one that should make the United Kingdom attractive as a jurisdiction for global fund formation post Brexit.

The PFLP is designed solely for private funds, and aims to create a more flexible vehicle for private equity, infrastructure and real estate fund managers. When compared with the existing UK limited partnership vehicle (which will continue to be available) the PFLP is less burdensome administratively, reducing the number and content of filings that are required. The PFLP also offers investors greater certainty in relation to their limited liability.

The private funds industry has lobbied for a number of years for such a change to the existing law which gives the UK a competitive advantage in light of new products being introduced by competing jurisdictions.

The amended legislative framework will only apply to “private fund limited partnerships”.  Under the amended legislation the “PFLP” is a limited partnership that is a collective investment scheme which is not authorised by the FCA and is formed by a written agreement under legal obligation.

To qualify as a PFLP a limited partnership must satisfy the following criteria:

• It needs to be formed by an agreement in writing; and
• it must be a collective investment scheme (as defined by the Financial Services and Markets Act, 2000).

The key changes to the law include:

• Limited partners’ obligations in respect of capital
• the role, function and rights of limited partners; and
• registration and ongoing filing and notification requirements

Capital Obligations

A Limited partner will no longer be required to make a capital contribution to the partnership – its entire commitment is able to be advanced as a loan. Where a limited partner does contribute capital and then withdraws it, it will no longer be liable for the debts and obligations of the partnership to the amount of any capital which it has withdrawn.

The role, function and rights of limited partners

The new legislation now includes a “white list” of actions that a limited partner may undertake without being considered to be undertaking management activities within the business.  As the Partnership law previously stood, if a limited partner took part in these activities previously it risked losing its limited liability status and could have been liable for all the partnership’s debts and obligations that were incurred during this time.

The “white list” of actions includes:

• taking part in a decision about whether to allow a type or a particular investment by the partnership; or the incurrence, extension or discharge of debt by the partnership;
• taking part in a decision regarding a person’s status to become or cease to be a partner;
• approving the accounts of the partnership and/or the valuation of partnership’s assets;
• taking part in a decision which involves actual or potential conflict of interest that affects or relates to the partnership, its business or a partner;
• appointing or nominating a person to represent the limited partner on a committee; and
• acting as a director, member, employee, officer or shareholder in a general partner or another person appointed to manage or advise the partnership.

Under the new law limited partners will no longer be subject to statutory duties to provide accounts and information to other partners and to account for profits made in a competing business.

The winding up of LP’s also sees an amendment.  Under the new legislation Partners will be allowed to agree amongst themselves who should wind up the limited partnership. The current requirement is for the general partner to wind up the partnership unless a court orders otherwise, which requires the limited partners to obtain a court order for the dissolution of the partnership in circumstances where there is no general partner has now been removed.

Registration and on-going filing and notification requirements

If a general partner becomes a limited partner or there is a transfer of a limited partnership interest there is now no longer a requirement to advertise in the London or Edinburgh Gazette.

Under the previous law there was no provision for removing a limited partnership from the Register of Companies at Companies House, even in the case where the partnership had been dissolved.  Now the Registrar of Companies has the power to remove partnerships that have been dissolved or where they are no longer carrying on a business, either on application by the partnership or where the registrar has reason to believe that the partnership is no longer carrying on a business.

There are now also fewer instances in which Companies House needs to be notified in changes to the particulars of a new limited partnership and the registration process for its formation is now simpler. The amount of information required to be submitted has been reduced.

The introduction of these changes is likely to be welcomed by the investment fund community and should make the PFLP an attractive product for the UK.