The introduction of the PFLP
is a welcome development in the UK private funds industry.
It brings the UK in line with other preeminent jurisdictions
offering limited partnership structures
and tangible improvements on
what was already a well-known and robust regime.
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UK Private Fund Limited Partnerships
An English limited partnership is commonly used as an investment vehicle for a variety of funds including private equity, real estate and infrastructure funds. The principal legislation governing such partnerships is the Partnerships Act 1890 ("PA 1890") and the Limited Partnerships Act 1907 ("LPA 1907") (collectively the "Acts").
On 16 January 2017, HM Treasury published a draft Legislative Reform Order ("LRO") to amend the Limited Partnerships Act 1907 ("LPA 1907") and introduce a Private Fund Limited Partnership ("PFLP") structure. The structure will be available to private investment funds (predominantly being those funds not authorised to be promoted to retail consumers) which are structured as limited partnerships.
A limited partnership may only be a PFLP if it is:
- constituted by an agreement in writing (this is satisfied by a usual form of limited partnership agreement ("LPA")); and
- a collective investment scheme ("CIS") (as defined by S235 FSMA 2000). This condition will be met, and the partnership can be a PFLP even if it takes advantage of one of the exemptions available to a CIS as S235 (5) FSMA is dis-applied.
The general partner will need to confirm that these conditions are satisfied but, practically speaking, a private investment fund structured as a limited partnership should easily satisfy the requirements and have the option to be designated as a PFLP.
To register a new PFLP there is no requirement to provide information relating to:
- the nature of the partnership's business;
- the term of the partnership; or
- the sum of capital contributed by any limited partner.
And, as mentioned above, the general partner will be required to confirm that the limited partnership meets the conditions of a PFLP (as set out above).
The investors, who will be limited partners, usually contribute funds to the partnership by way of interest-free loans. Because capital contributions made to a limited partnership cannot be withdrawn until the limited partnership is wound up, a limited partner’s capital contribution will often be purely nominal (perhaps £1). The partners’ interest-free loans will be repaid, along with a distribution of any profit, when the firm disposes of an investment in a target company.
A PFLP must be a collective investment scheme which is governed by an agreement in writing.
It is not necessary for a limited partner in a PFLP to make a capital contribution to the firm.
The limited partners of a PFLP may appoint a third party to wind up the firm if there is no general partner available to do so.
Certain duties under the Partnership Act will not apply to PFLPs unless the partners so choose.
A whitelist sets out a number of actions which limited partners in a PFLP may take without being regarded as taking part in the management of the firm and so losing their limited liability status.
A PFLP does not need to file at Companies House a change to the general nature of the business, the term or the character of the partnership, nor (with certain exceptions) does it need to file notice of any sum contributed by a limited partner.
An arrangement or transaction under which a limited partner’s share in a PFLP will be assigned to another person does not need to be advertised in the Gazette.
The introduction of the PFLP is a welcome—and long overdue—development in the UK private funds industry. It brings the UK in line with other preeminent jurisdictions offering limited partnership structures and offers both managers and investors tangible improvements on what was already a well-known and robust regime.
For new managers looking at establishing a limited partnership in England and Wales, or Scotland, a decision to designate as a PFLP should be simple.
For existing managers, there are clear benefits in doing so with little downside - provided that those managers have the authority to elect to do so and that amendments to the relevant LPA are either unnecessary or can be set easily.
For private equity funds formed as limited partnerships, the key legal document is the limited partnership agreement (LPA) which sets out in detail the legally binding relations between the investors (as limited partners in the partnership) and the general partner (representing the fund manager).
The partners are free to agree whatever commercial terms they choose to be in the LPA, save that a limited partner may not take part in the management of the limited partnership; if it does, it will lose its limited liability status.
The LPA sets out the rights and obligations of the partners and seeks to cover every aspect of the formation, operation and termination of the partnership, from the key commercial issues (e.g. investment policy, profit sharing, fees and expenses, etc.) to the detailed constitutional and administrative issues (e.g. when the manager can launch a new fund, reports and accounts, provision of information, etc).
Atrium Legal Lab will take care of all necessary and legally required procedures to get your UK Private Fund full registered and operative.
Our Lawyers will take care to provide all necessary initial arrangements for your Private Fund Limited Partnership Agreement – as included in our own services.
For any question or matter you may need to set up your UK PFLP, do not hesitate to contact us; all assistance will be promptly provided.
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