The government recently unveiled its final proposals for a new form of limited partnership vehicle, to be known as a private fund limited partnership (PFLP).
English limited partnerships are popular real estate investment vehicles. The main benefits of the structure are its flexibility, transparency for UK tax purposes and limited liability protection for investors. However, they are governed by outdated legislation which has led to increasing concerns that the structure is becoming less attractive.
Registration of a PFLP
To register as a PFLP, a limited partnership must be a "collective investment scheme" as defined in the Financial Services and Markets Act 2000. The exemptions to this definition (including in relation to joint venture arrangements) will be disregarded for the purposes of registration as a PFLP. It is currently unclear whether firms relying on the collective investment scheme exemptions in order to avoid regulation will be entitled to become PFLPs and therefore entitled to the benefits of the proposed changes.
In order to maintain limited liability, limited partners are prohibited from becoming involved in management of the partnership business, which can create an issue for investors looking to take part in decisions relating to the operation of the fund. The Government has therefore introduced a non-exhaustive list of activities that limited partners in a PFLP can undertake without losing their limited liability status. Other key fund jurisdictions, such as Jersey and the Cayman Islands, already have a similar list in place.
Under the current law, limited partners are required to contribute capital on admission to the partnership. Limited partners in a PFLP will no longer be required to make any capital contribution at the outset.
Those firms registered as a PFLP will have reduced disclosure obligations, both on registration and on an ongoing basis. In particular, capital invested by limited partners will not need to be disclosed.
The Government intends the new regime to be operational by March 2017. The existing regime will continue to apply for limited partnerships which are not registered as PFLPs.