The FT reports today that the Government will bring forward new legislation next year to tighten up the regime for establishing and operating UK limited partnerships (UK LPs), to deter money launderers and other criminals from setting up and using UK LPs. In particular, the Government is reportedly looking to:
- require UK LPs to “maintain a link to the UK”;
- allow only “official supervised agents” to register new UK LPs;
- oblige UK LPs to update annually the information filed by them at Companies House; and
- give Companies House a new power to strike off dissolved UK LPs.
All of these measures were trailed in a Department of Business, Energy and Industrial Strategy (BEIS) consultation earlier this year, so none is a surprise. Apart from the “UK link” requirement, the effect of these measures should not cause undue concern for legitimate users of UK LPs, such as UK private equity and real estate fund managers:
- UK LPs used by fund managers are typically already registered by law firms or accountancy firms, so the “official supervised agent” requirement will not change current practice. In fact, the BEIS consultation itself acknowledged that, in the last five years, fewer than 20 UK LPs have been registered by persons who are not supervised formation agents - this rather suggests that it is not the rules on setting up UK LPs that are in need of reform, but that the focus should instead be on improved supervision of formation agents and enforcement of existing anti-money laundering rules.
- UK LPs are already obliged to update information filed at Companies House within seven days of the information changing - so the requirement to file an annual update will probably be seen as a minor (if annoyingly duplicative) administrative task.
- Users of UK LPs and their legal advisers have long been asking for Companies House to have the power to remove redundant vehicles from the register - so the inclusion of this new power should be broadly welcomed.
Interestingly, there is no mention in the FT report of a requirement to force UK LPs to prepare and publish statutory accounts. This was an idea floated in the BEIS consultation that caused consternation amongst UK fund managers, given worries that it could result in funds structured as UK LPs having to publish commercially-sensitive information, putting them at a competitive disadvantage in the market place. There would be widespread relief if this proposal has indeed been dropped.
Of the reported measures, the “UK link” requirement is potentially problematic. It is not yet clear what kind of link the government is proposing. The options suggested by the BEIS consultation were either a permanent UK principal place of business or a permanent UK service address.
- The first option (a permanent UK principal place of business) is generally seen as a damaging change that would dent the attractiveness of UK LPs as vehicles for global investment activities. Fund managers (UK or non-UK) who might otherwise use UK LPs would simply look elsewhere to other jurisdictions, such as Luxembourg or the Channel Islands. It is also worth noting that there is no requirement for UK companies or UK LLPs to maintain a UK principal place of business - so long as they have a UK registered office, they can conduct their principal business activities anywhere in the world.
- By contrast, the second option (a permanent UK service address) is seen as a more sensible and proportionate solution, ensuring that UK authorities such as Companies House and HMRC can contact even a UK LP that conducts its business overseas, without forcing it to undertake a costly restructuring of its business activities to bring its principal place of business to the UK (or, perhaps more likely, transfer its business activities to a non-UK LP).
Industry responses to the BEIS consultation heavily objected to the first option and supported the second - we will have to wait until the draft legislation is published to see which option the government has decided to pursue. But this aside, the package of new measures as reported by the FT does not look like a game-changer for UK fund managers – although there will be frustration if the new legislation reverses any of the “private fund limited partnership” measures brought in last year to streamline the operation of UK LPs to make them more attractive as fund vehicles, particularly in the light of Brexit.
"… new legislation will force limited partnerships to maintain a link to the UK and be registered via an official supervised agent, according to a letter to the Treasury from the Department of Business, Energy and Industrial Strategy (BEIS) seen by the Financial Times