Four advantages of Private Fund Limited Partnerships23 Jun 2017
On 6 April 2017, the Legislative Reform (Private Fund Limited Partnerships) Order 2017 came into effect, changing the law on limited partnerships in England and Wales by introducing a new category of limited partnership known as a ‘private fund limited partnership’ or ‘PFLP’.
These changes will bring a number of advantages for investment funds traditionally structured as limited partnerships. The two conditions of registration as a PFLP are that the limited partnership is constituted by a written agreement and that it is a collective investment scheme (within the meaning of the Financial Services and Markets Act 2000). It is anticipated that many new funds meeting such criteria will be set up and registered as PFLPs. Existing limited partnerships can also take advantage by re-designating as a PFLP if they meet the criteria.
What are the key advantages of having a PFLP?
Capital contributions: there is no requirement for limited partners to make a capital contribution to a PFLP and, where capital contributions are made, they can be repaid to limited partners without them losing their limited liability status. For existing limited partnerships converting to a PFLP, any capital contributions made before such conversion will still be treated as capital under the previous regime.
Limited partner involvement: there is now a ‘white list’ of activities that limited partners of a PFLP can do without losing their limited liability status. The list is non-exhaustive but gives a degree of certainty around which activities will not be considered as taking part in the management of the limited partnership, where previously this was a grey area. It also includes activities such as approving accounts, reviewing valuations of the PFLP’s assets , and taking part in certain decisions about the PFLP.
Reduced administrative burden: PFLPs are subject to fewer filing requirements, including not having to file details of capital contributions at Companies House. In addition, certain changes are no longer required to be advertised in the Gazette to give them legal effect; this includes the transfer by a limited partner of their interest in a PFLP.
Winding up: limited partners of a PFLP can, in the absence of a general partner, appoint a third party to wind up the partnership on their behalf without a court order.
The take up of PFLPs is expected to be high with the removal of, what were seen as, unnecessary administrative and procedural burdens. Additionally, there is a clarification of parameters for limited partners being warmly welcomed by the investment fund sector.
Funds meeting the criteria should seek advice on whether a PFLP is right for them. For existing funds, the decision will need to factor in the administrative time and cost of conversion and whether the advantages longer term will outweigh this.
If you would like to discuss any of the topics raised in this article or have any questions, please contact our Corporate team on 0161 838 7806.