The government has published its response to last year’s consultation on proposals for reform of the law concerning limited partnerships.
As we reported in our earlier article, these proposals arose from concerns that, especially in Scotland (where partnerships have legal personality), limited partnerships are being used for money laundering, organised crime and tax evasion.
To address these concerns, the government published a call for evidence for its review of limited partnership law in January, and a consultation on proposals for the reform of limited partnerships in April.
The response to the consultation now confirms, in outline, the government’s proposals in relation to the following:
- restricting the right to present an application to register a limited partnership to those supervised under anti-money-laundering legislation;
- requiring limited partnerships to maintain their principal place of business, or a service address, in the United Kingdom;
- requiring limited partnerships to file an annual confirmation statement; and
- enabling a limited partnership, in certain circumstances, to be removed from the register.
The objective of the proposals is ‘to limit the potential misuse of limited partnerships’ while ensuring that ‘limited partnerships remain attractive for legitimate business use, in particular as an investment vehicle’.
REFORM OF REGISTRATION REQUIREMENTS
In order to prevent the registration of limited partnerships for illicit purposes, the government has confirmed, as expected, that all those presenting applications to register a limited partnership will be required to provide evidence that they are supervised by an appropriate body under anti-money-laundering legislation. This will end self-registration of limited partnerships.
Applications from overseas will be made subject to equivalent standards. It is not yet clear how this will be achieved; the possibility of limiting overseas applications to jurisdictions within the European Economic Area is mentioned.
Principal place of business
The government originally proposed two alternative options to ensure that limited partnerships retain a meaningful address in the United Kingdom at which the authorities can contact them. Under option A, a limited partnership’s principal place of business would be required to remain in the jurisdiction in which it was registered. Under option B, limited partnerships would be permitted to move their principal place of business outside the United Kingdom, as at present, but would be obliged to maintain a UK service address.
The proposal now adopted effectively offers limited partnerships a choice between these options (with some modifications) – a move that will be welcomed by limited partnerships operating overseas.
On application for registration, a limited partnership will have to provide a proposed principal place of business in the UK. Thereafter, it will be required to:
- retain its principal place of business in the UK; or
- demonstrate that it is continuing some legitimate business activity at an address in the UK; or
- demonstrate that it continues to engage the services of an agent which is registered with a UK anti-money-laundering supervisory body and which has agreed to provide its address as a service address for the limited partnership.
A limited partnership will have to notify Companies House of any change to its principal place of business and to the nature of its connection to the UK. The government will consider how to apply these requirements to existing limited partnerships.
Reporting and transparency requirements
Currently, only Scottish limited partnerships are required to file an annual confirmation statement. In future, this requirement will be extended to all limited partnerships, which will be required to confirm annually the limited partnership’s name, the general nature of its business, the address of its principal place of business, the term of the limited partnership (if any), the names and contact information for all general and limited partners, the amount contributed by each limited partner, the date of birth and nationality of all general and limited partners who are natural persons, a standard industrial classification code indicating the nature of the limited partnership’s business, and the nature of the limited partnership’s connection to the UK.
New limited partnerships will be required to provide these details on registration and confirm them annually, and transitional arrangements will require existing limited partnerships to file any additional information required. Presumably partners’ full dates of birth will not be made public; even so, the requirement for limited partners to provide their contact details and dates of birth goes beyond what is required of shareholders in a UK company or members of limited partnerships established in most overseas jurisdictions. It remains to be seen how the new arrangements will be applied to private fund limited partnerships (PFLPs), which are not currently required to file changes to the general nature of their business or the term or character of the partnership.
There is no indication that limited partnerships outside Scotland will have to file information relating to people with significant control, as is currently the case for Scottish limited partnerships. Nor is it suggested that overseas corporate partners will have to provide details of their registration in any overseas corporate register. The government will, however, consider whether corporate partners that do not already hold a PSC register should be required to provide beneficial ownership information.
At present, most limited partnerships do not file accounts, and the government has decided not to proceed with its earlier suggestion that all limited partnerships should be required to do so. The government will nevertheless consider further whether any additional measures should be taken in relation to limited partnership accounts; it is not clear what such measures might amount to.
There is currently no means by which a limited partnership may be removed from the register at Companies House. To address this point, the government has confirmed that the registrar of companies will be given power to strike off limited partnerships that are dissolved or found not to be carrying on business or in operation. Presumably there will also be a mechanism by which a limited partnership will be able to apply voluntarily to be removed from the register on its dissolution, though the consultation response does not mention this explicitly.
The new power will be subject to a ‘robust notification procedure’. This is not set out in any detail, but the government says it will be ‘at least as strong as the procedure that is already in place for companies’, including, as far as possible, giving notice of the possibility of strike-off to all general and limited partners. It is recognised that particular safeguards will be needed in the case of limited partnerships registered many years ago.
The government will develop an appropriate procedure to enable restoration to the register, in certain circumstances, of a limited partnership that has been struck off.
It remains to be seen whether the safeguards adopted will be sufficient to address concerns that, if a limited partnership has not in fact been dissolved, it would on strike-off become a general partnership, with loss of limited liability for the limited partners. We discussed this point in more detail in our earlier article: the concern is that limited partnerships may become less attractive as an investment vehicle if there is any risk that a limited partner could inadvertently become liable for the debts of the partnership.
To address these concerns, perhaps the new legislation will provide that, while limited partners are prohibited from participating in the management of the limited partnership (with certain exceptions in the case of private fund limited partnerships), and do not have power to bind the firm, they will nevertheless be able to object to an unwarranted strike-off that would deprive them of the protection of limited liability.
While the government’s proposals for the reform of limited partnerships are now confirmed, in some respects (such as transitional arrangements, accounts, and the procedure for strike-off) only an outline of what is proposed has been given.
Further details will be provided when draft legislation is published. It is not clear when that will be: the consultation response merely says the government will legislate when parliamentary time allows.