On July 23, as part of the proposals announced in the Summer Budget by the Right Honourable George Osborne MP, UK Chancellor of the Exchequer, Her Majesty’s Treasury published a paper (Consultation Paper) in which certain proposed changes to UK partnership legislation were outlined for consultation (Consultation) as it applies to collective investment schemes (as defined in the Financial Services and Markets Act 2000), which are not authorized by the Financial Conduct Authority (Private Funds). The Consultation forms part of the UK Investment Management Strategy­­––a strategy that was initially launched as part of the UK budget in 2013––to implement certain technical changes to UK partnership law with a view to removing unnecessary legal complexity and administrative burdens when applied to Private Funds that do not apply to similar vehicles in other jurisdictions. This strategy mitigates possible jurisdictional arbitrage and ensures that the use of UK limited partnerships remains the market standard for European private equity and venture capital fund structures (as well as other types of private funds in an increasingly competitive global market), while furthermore highlighting the United Kingdom’s position as a leading center in Europe (and more generally) for asset management.

The Consultation focuses on proposed amendments to the Limited Partnerships Act 1907 ((LPA 1907) and to a lesser degree the Partnership Act 1890 (PA 1890) (together, Legislation)) as they apply to Private Funds; this legislation was introduced more than 100 years ago and has largely remained unchanged since then. The specific amendments proposed to the Legislation in the Consultation include:

  • Limited Partner Activity “White List” – a non-exhaustive list of activities that a limited partner (LP) in a Private Fund may undertake without being considered as taking part in the management of the business (and therefore without losing their limited liability).
  • Capital Contributions – the removal of the need for LPs to make a capital contribution upon becoming an LP and maintain such contribution for the life of the partnership (thereby removing the need for the current funding commitment to be split between a nominal capital contribution (to satisfy the current legislative requirements as set out in the Legislation) together with a contractual undertaking to fund the balance of its commitment by way of interest free loans).
  • Winding up a Limited Partnership – the removal of the need for LPs to have to apply for a court order to dissolve a Private Fund under the supervision of the court in the event that the general partner has been removed (and instead allow LPs to agree among themselves who should wind up the limited partnership without a court order).

In addition to the above, the Consultation also includes certain proposed administrative changes to the Legislation with respect to: (1) Private Fund registration with the Registrar of Companies in the United Kingdom, (2) the requirement to publish certain matters concerning the admission of LPs or the transfer of interests in the London (or Edinburgh or Belfast) Gazette, and (3) the exemption of LPs from certain statutory duties contained in PA 1890 concerning the duty of partners to render accounts (Section 28, PA 1890) and the duty of partners to account for profits made in competing businesses (Section 30, PA 1890).

Any proposed amendments based on the findings from the Consultation will be effected by way of a Legislative Reform Order––a statutory instrument that permits primary legislation to be amended to remove or reduce burdens contained within such legislation. The Consultation closes on October 5. Further information on the Consultation (together with the draft legislation implementing the changes proposed can be found here. The original LPA 1907 and PA 1890 can be found here and here, respectively.