Limited partnership structures are commonly used in the investment fund, private equity and property investment worlds due to their limited reporting requirements, flexibility, tax see-through treatment and the possibility of some of the partners obtaining limited liability. While they are mainly governed by the Limited Partnerships Act 1907 and the Partnership Act 1890, the Government has over the last few years started to tweak the applicable rules. For example Private Fund Limited Partnerships, which allow limited partners more influence over major decisions without losing limited liability, were introduced in April 2017 and Scottish limited partnerships have been subject to the Persons with Significant Control regime since June 2017. A new consultation has just been announced in which further changes have been proposed.
In essence the Government has become concerned that the privacy offered by limited partnerships, and in particular Scottish limited partnerships, has led to them becoming vehicles for money laundering schemes, including one in which more than US$80 billion was moved out of Russia. They have been linked to international criminal networks around the world and there is the possibility that they have been used for arms deals.
In order to reduce abuse of limited partnership structures, the Government is consulting on:
- requiring that limited partnerships have a real connection to the UK, including ensuring they do business or have a service address in the UK;
- requiring registration of limited partnerships through company formation agents who will be required to carry out anti-money laundering checks;
- giving powers to Companies House to remove limited partnerships from the register if they have been dissolved or are no longer operating;
- changing the reporting requirements for limited partnerships so that they are all required to prepare and file accounts in the same way as a company; and require all limited partnerships to provide an annual confirmation statement setting out both details of the limited partnership itself such as who its general and limited partners are; its principle place of business and service address; and the sum contributed to the limited partnership by each partner and whether that sum was paid in cash or kind.
While some of the proposals, such as the ability for the registrar to remove old limited partnerships from the register, are clearly to be welcomed, other changes proposed are likely to add friction to the use of limited partnerships, and may make them less appealing. Users of limited partnerships can reply to the consultation by following this link. However, given the clear issues with abuse of limited partnerships and current approaches to money laundering it seems inevitable that further rules will be brought in to address the Government’s concerns.
Edwin Coe LLP is a Limited Liability Partnership, registered in England & Wales (No.OC326366). The Firm is authorised and regulated by the Solicitors Regulation Authority. A list of members of the LLP is available for inspection at our registered office address: 2 Stone Buildings, Lincoln’s Inn, London, WC2A 3TH. “Partner” denotes a member of the LLP or an employee or consultant with the equivalent standing.