Changes to partnership law in the UK have been a long time coming. What will it mean for VC, private equity and other closed-ended funds? Rob Mailer looks at the implications
The UK’s Limited Partnerships Act 1907 (the Act) is often seen as rather archaic by corporate lawyers. However in July 2015, after more than a century without major changes, the UK government announced that it intends to bring its limited partnership law into line with other jurisdictions such as Delaware, the Cayman Islands, Jersey, Guernsey and Luxembourg.
The key driver behind the proposed reforms is the acknowledgement that, while it may be far from what the Act’s original draftsmen had in mind, limited partnership is the most common vehicle for venture capital, private equity and other closed-ended private funds, and many of the statutory eccentricities inherited from the Edwardian era are no longer particularly useful or helpful in this context.
Following its announcement, the UK government published a consultation paper and a draft legislative reform order through which the changes will be made. The government’s stated intention is to “maintain and enhance the UK’s competitiveness as a centre for fund domicile and to minimise costs to investors”, by creating a new regime within the existing Act that will apply to limited partnerships that satisfy certain criteria to be classified as “private funds”, but which will not apply to other “non-fund” limited partnerships.
Existing partnerships that do qualify as private funds will have one year to opt in to the new regime from the date the changes come into force. The envisaged criteria are that the limited partnership is governed by an agreement in writing, and that it is a collective investment scheme as denied in the Financial Services & Markets Act 2000. As currently drafted, a fund’s legal adviser needs to certify that the fund fulfils the criteria, but given that one of the stated aims of the amendments is to reduce costs and relieve administrative burden, this certification requirement seems unnecessary, as does the arbitrary time limit of 12 months from implementation for existing funds to opt in. It may instead be preferable for the general partner to provide the certification, allowing it to seek legal advice (and therefore incur additional costs), only if required.
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