A new regime that will reduce the costs and administrative burden of operating a UK limited partnership will come into force on April 6.
The Private Fund Limited Partnership, the result of changes to the 1907 Limited Partnership Act, is designed to bring the UK limited partnership in line with other major fund jurisdictions.
One of the biggest benefits of the regime is the inclusion of a “white list” which details actions an LP can take without jeopardizing their limited liability. Examples include appointing a person to wind up the partnership, acting as a guarantor for the partnership and reviewing or approving a valuation of the partnership’s assets. Previously there has been uncertainty as to what would constitute “management of the partnership” by an LP.
“Generally, investors are not supposed to get involved in the management of the fund (as they pay the fund manager for this), but the white list allows a manager to give an investor more power without the fear they will lose their limited liability,” Brian O’Neill, lawyer in Goodwin’s Private Investment Funds Group, told pfm.
Until now, those managers that wanted to give such additional rights would have looked to another jurisdiction.
‘The white list also provides significant comfort to investors who appoint representatives to a fund’s advisory board,’ O’Neill added.
The white list is not exhaustive, and nor does it automatically permit LPs to carry out the activities included in it – this will depend on the terms agreed in the relevant partnership agreement.
“These white lists are used in other jurisdictions; essentially this is a case of the UK playing catch up,” said Greg Barclay, a partner at Goodwin.
It means it will be easier for firms that set up a UK parallel fund or alternative investment vehicle alongside a fund domiciled in another jurisdiction.
“Until now managers that have a main Delaware fund, for example, have usually had to change some of the governance/decision making terms when setting up the related UK fund. This will no longer be the case,” Barclay said.
A second change removes the requirement for gazette notices on a transfer of a limited partner interest – it will only be required if a general partner becomes an LP, and in this case its purpose is to inform third parties that may otherwise be dealing with the GP.
PFLPs will not be required to file notices of changes relating to the nature of the partnership’s business, or changes to the terms of the partnership either.
“Each notice costs around £100 plus associated legal costs, so over the lifetime of the fund there may be considerable savings,” O’Neill told pfm.
The wind-up process has also been simplified; currently a limited partnership must be wound up by its GP, and in the case the GP has been removed, the remaining LPs must apply for its dissolution under the supervision of the court. LPs can now authorize a third party to wind up the partnership on their behalf.
Fund managers using UK based partnerships can elect for their funds to be PFLPs, or stick to the original regime, while funds already on the road can re-designate as a PFLP if the fund manager wishes.
“It just involves filling out a form, and the GP confirming that the limited partnership fulfills the conditions to be a PFLP,” O’Neill said.
To be a PFLP, the fund must be constituted by an agreement in writing, and a collective investment scheme. Certain club deals and joint ventures may not qualify due to the significant involvement by limited partners, although they will be considered on a case by case basis.