Asset managers have used Limited Partnerships (LPs) for years as the go-to vehicle for private equity fund structures. However, LPs have been the source of some criticism in more recent times for their alleged use in money laundering. To combat this, changes are being brought in under the Economic Crime and Corporate Transparency Bill to increase transparency within these structures and strengthen their nexus with the UK. Many private fund managers will be caught by the new rules as a consequence.

What are the changes?

The Bill proposes various changes to the Limited Partnerships Act 1907, the core statute governing English LPs and Scottish LPs. In some cases, noncompliance with the new rules could constitute an offence and result in deregistration of the LP. 

Registered offices and officers

A corporate General Partner (GP) must have at least one individual appointed as a ‘registered officer’ – a person with whom Companies House can make contact. This could be a director or member of the GP. Meanwhile, an LP will need to have an appropriate registered office in its jurisdiction, where documents can be delivered.

Managers of English or Scottish Limited Partnerships (ELPs or SLPs) that have relocated the principal place of business of that LP to another jurisdiction – perhaps for tax reasons or to avoid the need to appoint a full scope depositary for the purposes of the AIFM Directive – will need to add a UK registered office. This could have material consequences for the structure, including additional cost.

The proposals would also allow Companies House to change an LP’s registered office address if it is not considered “appropriate”. GPs will also have to maintain a registered email address for the LP so that it is contactable.

More information to be filed about an LP’s partners

Additional information about partners will have to be filed at Companies House so that their identity can more easily be ascertained (whether corporates or individuals).

This is a material additional disclosure obligation for managers of funds structured as ELPs or SLPs that have any investors who are natural persons. For managers whose investors are institutions (as is common), this may not be such an issue. However, more information will need to be filed about the participants in carry vehicles (often structured as SLPs), which is unlikely to be popular with fund managers.

Confirmation statements 

LPs will need to submit an annual statement confirming that the information held by Companies House is correct.

As long as managers keep on top of their Companies House filings – admittedly no mean feat – the annual confirmation should not be too much of a burden. Any changes to the information that needs to be filed under the new rules will need to be notified to Companies House, and the pre-existing requirements to file LP6s with certain changes relating to an LP will generally continue.

HMRC power to demand accounts of an LP

HMRC will have the power to require GPs to prepare audited accounts for review by HMRC. Most managers arrange for accounts to be prepared for their funds anyway as their investors routinely require these (and full scope UK AIFMs are required to prepare them under the FCA Rules), so this new power may not prove to be burdensome. 

However, it is not clear whether HMRC will need good grounds to demand the accounts of an LP (such as reasonable suspicion of criminal activity), and it is hoped that HMRC would accept the accounts already prepared for a fund’s investors rather than demanding information be presented in a different way. It is worth noting that a demand by HMRC could also apply to LPs that are not funds per se, such as carry vehicles or aggregator LPs.

Filings only to be made by ACSPs

Only authorised corporate service providers (ACSPs) will be able to apply to register LPs and make other filings relating to LPs. This might make little difference to how filings are made in practice to the extent FCA authorised managers make the filings themselves, but it may prove to be an additional cost for those outsourcing the functions. 

Dissolution and winding up of LPs

To date, there has not been a comprehensive legal procedure to follow for winding up LPs. New rules governing how LPs can be dissolved are therefore largely welcome.

Under the new rules, the dissolution of an LP must be notified to Companies House. If an LP is dissolved when there is no GP (eg, where a GP has been removed in accordance with the provisions of a fund’s LPA), the limited partners would need to notify Companies House of the dissolution. While the GP, if in place, can wind up the LP, the LPs will be able to appoint a third party to do so, without compromising their limited liability. 

In addition, Companies House will have the power to deregister LPs that are dissolved, no longer carrying on business or where Companies House has reasonable cause to believe that the LP has dissolved. For example, if an LP appears to be dormant or does not respond to notices or demands, then Companies House can strike it off the register.

This provides some clarity on the existing approach to winding up LPs. However, it will be important to take care when handling deregistrations, so that the limited liability conferred on limited partners by registration of the partnership at Companies House remains in place until it is no longer needed.

Managers may also wish to revisit the dissolution provisions of the LPAs governing their funds to ensure they will be compliant with the new rules.

We still expect ELPs and SLPs to continue to be key tools in the box when it comes to structuring private funds, carry vehicles, co-investment sleeves and funds of one in the UK. They also remain popular with institutional investors, who are well accustomed to how they operate and protect them as participants. However, fund managers should prepare for the changes soon so they can remain compliant from the point the new laws become effective.

The Bill is due to have its third reading on a date to be announced. 

• George Metcalfe is a Private Funds Partner at law firm Freeths.