Private fund limited partnerships: Five reasons why a private investment fund should consider electing to become one

On 16 January 2017, the government laid before Parliament a draft Legislative Reform Order to amend limited partnerships legislation as it applies to private funds such as venture capital and private equity funds.  The legislation is expected to come into force on 6 April this year and will allow qualifying limited partnerships to elect to be treated as a “private fund limited partnership” (PFLP).  We have set out below the 5 key benefits of making such an election.

  1. Limited partners of a PFLP can, subject to agreement with the general partners, carry out certain “white list” activities without being considered to be taking part in the management of the limited partnership (and therefore without risking their limited liability status).  There are currently no safe harbours for limited partnerships from the rule that limited partners who take part in the management of the business of the partnership are liable for the debts and obligations incurred by the partnership, as if they were general partner.
     
  2. Limited partners are not required to contribute capital on becoming a partner and will be able to withdraw capital contributions made on or after 6 April 2017 without being liable for the debts and obligations of the PFLP up to the amount so withdrawn.
     
  3. A PFLP can be wound up without a court order, even where it no longer has a general partner. 
     
  4. Certain statutory duties (under the Partnership Act 1890) which are inconsistent with the role of investor in an investment fund no longer apply by default to PFLPs.  In particular, partners are not bound to:
    (a) provide true accounts and full information of all things affecting the partnership to any other partner (or his legal representatives); or
    (b) account for and pay over to the firm any profits made in any business of the same nature as and competing with that of the firm (where such activities were carried out without the consent of the other partners).
     
  5. Notifications to the registrar of companies of:
    (a) changes which relate to the nature of the partnership’s business;
    (b) changes to the term or character of the partnership; or
    (c) the sum contributed by any partner,
    are not required by PFLPs, helping to keep investment decisions private.  Administrative requirements are further eased (in comparison to those of limited partnerships) because there will be no obligation for a PFLP to publish transfers of a limited partner’s interests in the Gazette and no entitlement for a person to treat old PFLP limited partners as still being a member of the partnership until such notification is made.

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