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the introduction of the private fund limited partnership (PFLP) - a step towards clarity for investors in private funds

16 March 2017
The UK Government has long sought to promote the UK limited partnership (LP) as a market standard structure for European private investment funds and to enhance the UK as a competitive fund domicile. Many jurisdictions competing with the UK in the funds area have adapted their limited partnership models in ways that arguably provide more flexible structures which better suit the needs of sponsors and investors.

From 6 April 2017, fund managers and investors will be able to make use a new vehicle, the private fund limited partnership, which will build on the advantages of LPs, whilst addressing some of the perceived issues that have been raised previously.

Benefits of becoming a PFLP

There are a number of key benefits of becoming a PFLP, which will introduce clarity to what has been until now, unclear provisions relating to LPs.

The ‘white list’

At present, any limited partner who takes part in the management of an LP can be liable for all debts and obligations of the LP incurred whilst taking part in the management, as if they were a general partner.

With increasing investor demands relating to approval and consultation rights, in the absence of clear guidance on what constitutes ‘management’, investors have struggled to establish clear boundaries and to protect their limited liability status.

The LRO introduces a non-exhaustive 'white list' of activities that a limited partner in a PFLP may undertake, without being considered to be taking part in the management of the PFLP and therefore preserve their limited liability status.

The removal of capital contributions

The requirement for a limited partner to make a capital contribution will be removed for new PFLPs. In addition, in future capital contributions may be withdrawn by investors without being potentially liable for the debts and obligations of the LP in respect of the amount withdrawn. 

The current law will continue to apply to capital contributions that were made to existing LPs before they opt into the PFLP rules, so that they will not be capable of being withdrawn without the investor being liable to creditors up to that amount.

Removal of some statutory duties

Certain duties applicable to partners under the Partnership Act 1890 have been dis-applied for limited partners of a PFLP. Limited partners will not be subject to the duties to render accounts and other information to other partners and to account for profits made in competing businesses. It has always been possible to dis-apply these sections (in the limited partnership agreement, for example), but it is useful for this to be the case by default for a PFLP.

Winding up or striking off

Current legislation requires that a LP must be wound-up by its general partner, unless a court orders otherwise. This can raise a problem where the general partner has been removed, as it then requires a court order to wind up the LP.

The LRO allows limited partners of a PFLP to appoint a person who is not a limited partner to carry out the winding-up of the PFLP where there is no general partner. Where there is a general partner, the partners can agree a person other than the general partner to carry out the winding-up.

Simplification of administrative requirements

As well as simplifying the registration process, the requirement for a Gazette Notice to be published when a limited partner assigns its interest in a PFLP to another person will be removed. There will also be no requirement for a Gazette Notice on the retirement of a partner in a PFLP or on a change in a PFLP’s constitution.

However, the requirement to advertise in the Gazette will remain when a general partner becomes a limited partner, and the government is to clarify when the effective date of this change is.

PFLP conditions

An LP may only be designated as a PFLP if satisfies two conditions. First, the PFLP must be constituted by an agreement in writing. Second, it must be a collective investment scheme within the meaning given in FSMA, ignoring any applicable exemptions.

Broadly speaking, all LPs that are being used as fund vehicles are expected to qualify as PFLPs. An LP can elect to be a PFLP at any time but, once this has been done, it cannot be reversed.

Applying to become a PFLP

An application for designation as a PFLP can be made by a general partner, either at the time of initial registration of the LP or at any time thereafter, so long as the relevant conditions are met. 

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.