Comment: UK LP reform package
The Economic Crime and Corporate Transparency Bill (the Bill) includes a package of proposed legislative amendments to UK limited partnership (UKLP) law, substantially to tighten registration requirements and improve transparency. One of the overall aims of the Bill is to prevent the use of English and Scottish partnerships (along with companies) for the purposes of economic crime, including fraud, money laundering and terrorist financing. It builds on the Economic Crime (Transparency and Enforcement) Act 2022 that established the new register of overseas entities that hold UK land, launched by Companies House on 1 August 2022.
The Bill was published on 22 September 2022 and its second reading is due on 13 October 2022. The principles of the transparency measures are not new, having first been mooted in the government’s April 2018 reform proposals, subsequently flagged in the December 2018 BEIS press release and the February 2022 Corporate transparency and register reform white paper, and announced as a Bill in the May 2022 Queen’s Speech. If enacted, the changes will represent a significant reform of UKLP law, in parallel with reforms to the powers of Companies House and new powers for law enforcement to seize cryptoassets which are the proceeds of crime or associated with money laundering, fraud or other illicit activity.
We have set out below an overview of the key proposals in the Bill on UKLP reform, along with our comments on them. We would expect the Bill to proceed at pace, given the current legislative focus on economic crime. GPs should therefore start to analyse their structures, so that they are prepared (absent any amendments) to comply within the short six-month transitional period set out in the Bill. In particular, gathering the required information to be submitted to Companies House for each partner (including specifics on any individual limited partners), ensuring they have access to a Scottish or English registered office where their principal place of business is not also in the UK and arranging appointments of individual registered officers of GPs.
REQUIREMENT FOR UKLPS TO MAINTAIN A REGISTERED OFFICE WITH A UK CONNECTION
A UKLP’s registered office has to be in its jurisdiction of registration (England, Scotland or Northern Ireland) and has to be at an “appropriate” address (i.e. someone who delivers documents there can expect that they come to the attention of someone acting on the UKLP’s behalf and where the UKLP can acknowledge delivery). However, a UKLP has the option to use the address of its authorised corporate service provider (ACSP) as its registered office and could therefore still have its principal place of business outside the UK without affecting the UKLP’s registration status. As set out below, this requirement is proposed to be used in tandem with a power for the registrar to confirm dissolution of unresponsive UKLPs. The registrar can also change a UKLP’s address if it is not considered “appropriate”.
Industry will need to consider the impact that the requirement for a UK registered office has on the regulatory status of existing AIFs.
Documents may be served on a UKLP by leaving it at or sending it to its registered office. GPs will also have to maintain a registered email address.
REQUIRED INFORMATION ABOUT UKLPS
When applying to register a UKLP, the GP has to submit specified information about each partner (whether an individual or legal entity) and any changes in that information (including those relating to a proposed partner that occurred after application but before a UKLP is registered). For a partner that is an individual, this includes the person’s name, date of birth, nationality, any former names, usual residential address, the part of the UK that the individual is resident (or country or state if outside the UK), and for a GP that is an individual, a service address (this can be the UKLP’s registered office). For a partner that is a legal entity, this includes its name, registered or principal office address, service address, legal form of the entity and for a GP, details of any register in which it is entered.
GPs are also able to use a standard system of classification to specify the nature of the partnership business.
DELIVERY OF DOCUMENTS BY ACSPS
All registration applications (as well as confirmation statements, applications for administrative revival and notices of changes) must be presented by a registered ACSP, being an entity supervised under UK AML rules. In practice this means applications, where not made by FCA-regulated investment firms themselves, will have to be made by company service providers, law firms and other advisers that are appropriately supervised and offer this service.
Secondary regulations can make provision for non-UK ACSPs (subject to relevant regulation and supervision in their jurisdiction), which is helpful, as well as to specify other documents to be added to this list and provide any exemptions.
RESTRICTIONS ON GPS
A GP that is a legal entity must have an individual appointed as its “registered officer” and provide individual contacts for each of its officers that are also legal entities.
As currently drafted, the changes may pose an issue for English limited partnerships (ELPs) with a UK LLP as its general partner (as is common). As GP of the ELP, the LLP will need to give details of an individual who is its “registered officer” (so a natural person will need to be a member in the LLP). It is standard in a fund structure for a GP LLP to only have two corporate members, so the changes would mean appointing a natural person as a member of the GP LLP, and considering the tax impact of such an appointment.
In addition, a person who has been disqualified as a director of a UK company cannot be a GP.
Where a GP is appointed subsequent to initial registration of the UKLP, it cannot take part in management until the notification has been made.
ANNUAL CONFIRMATION STATEMENTS AND ADDITIONAL FILING OBLIGATIONS
As is already the case for certain UK companies, LLPs and Scottish limited partnerships (SLPs), ELPs will have to provide an annual confirmation statement to Companies House within 14 days of each review period, to confirm that all the information on the register is correct, and deliver any necessary updates. For existing ELPs, the first review period is between registration and the end of the six month transitional period. For new ELPs, 12 months from their date of registration. Then each subsequent 12 month period (which can be shortened on notice to the registrar from the GP).
However, this annual confirmation statement does not replace the current ad hoc Form LP6 filing requirements for notice of changes, with slightly different requirements remaining in place for private fund limited partnerships (PFLPs). Given the increase in the amount of information to be submitted to Companies House and that is also subject to ad hoc and annual updating requirements, UKLPs will want to put rigorous systems in place to ensure they can comply.
POWER FOR HMRC TO OBTAIN PARTNERSHIP ACCOUNTS (FOR THOSE UKLPS THAT ARE NOT QUALIFYING PARTNERSHIPS)
Although there is no new requirement for compulsory publication of partnership accounts, HMRC has the power to obtain UKLP accounts on written notice. This may therefore apply to those partnerships that aren’t “qualifying partnerships” under partnership accounting rules. Secondary legislation is to follow as to how this is to be implemented, and may follow other example regulations of when this could be requested, i.e. if there is reason to believe that the UKLP may have undertaken fraudulent activity or HMRC receives a request from a law enforcement body.
Where UKLPs are already required to provide accounts under law or regulation, it would be helpful if the government confirms that these accounts will suffice.
MORE FLEXIBILITY IN DISSOLUTION OF UKLPS
These provisions are based on the modifications applied to PFLPs when introduced in April 2017, extended to all UKLPs under the draft amendments. In essence, if a UKLP is dissolved when there is at least one GP, the GP(s) can wind it up, subject to agreement between the partners. If a UKLP is dissolved when there is no GP, the limited partner at that time can, subject to any other agreement between them, appoint someone between them (not a limited partner itself) to wind up the UKLP. This will not comprise management so a limited partner would not lose its limited liability status in appointing someone to wind up the UKLP. The partners must give notice to the registrar in both cases.
POWER OF REGISTRAR TO CONFIRM DISSOLUTION OF UKLPS
The Bill introduces a new power for the registrar to keep the Companies House register up to date by removing UKLPs from it that are not in business or operation. The mechanic proposed is that, where it has reasonable cause to believe that a UKLP is dissolved, the registrar can publish a warning notice inviting representations to the contrary (a copy of which is sent to the UKLP’s registered office and the GP). The registrar can publish a dissolution notice after two months have passed, at which point the UKLP will automatically be treated as dissolved.
Importantly, a restoration procedure is included, whereby on application (within a 6 year period from dissolution) the registrar can revive a UKLP that it dissolved as set out above, provided various conditions are met (e.g. any outstanding fines are paid and the UKLP records are updated), in which case the UKLP will be treated as having continued in existence as if it had not been dissolved.
Within a six-month transitional period the registrar can publish a dissolution notice as described above without having to first comply with the warning or notification provisions.
Following dissolution, the registrar has the ability to archive partnership information over time. However, the actual power to deregister a UKLP (such that it would automatically become a general partnership) is only available to the registrar following an application for voluntary deregistration (as set out below).
VOLUNTARY DEREGISTRATION OF UKLPS
A UKLP can apply to be removed from the register if all partners agree. Care will need to be taken if this route is chosen, as on publication of the deregistration notice the UKLP will default to being treated as a general partnership (with consequent loss of limited liability status for the limited partners).
IMPACT ON EXISTING UKLPS
For many of the proposals, GPs of existing UKLPs have a six-month transitional period from when the Bill is enacted to provide the information to the registrar and any failure to comply (without contrary evidence) is to be treated as reasonable cause for the registrar to dissolve the UKLP without warning. It will therefore be critically important that GPs of existing UKLPs ensure they provide the necessary information and make the necessary adaptations to their models within this six-month period.
We would flag three other proposals of impact.
- A broad provision giving power for the secretary of state to make regulations which apply company law with modifications to fit the circumstances of limited partnerships (mirroring an existing power for LLPs). This is a far-reaching provision for potential future amendments to align partnership with company law
- The Bill introduces various criminal sanctions (fines and in some cases prison sentences) for GPs of UKLPs (and the managing officers of GPs that are legal entities) for failure to comply. This includes new offences to deliver documents or make statements to the registrar (without reasonable excuse) that are misleading, false or deceptive in a material particular
- Certain information is not to be made available for public inspection, including protected date of birth and residential address information, registered email addresses, named contacts and any documents delivered by ACSPs. However, the registrar can disclose under certain circumstances, for example, where the same information is already publicly available or (for certain information relating to individuals) to credit reference agencies. Partners are also restricted from disclosing residential address and date of birth information of other partners.