France: The new special limited partnership regime

A new investment vehicle offers investors a structure similar to the AngloSaxon and Luxembourg limited partnerships as well as an attractive tax regime.

The new investment vehicle, the société de libre partenariat (SLP), was introduced by Law No. 2015-990 of 6 August 2015 on growth and activity (the Law).

Existing corporate form

The legal regime of the SLP is based on the existing French company’s legal form – Société en Commandite Simple.

This form is, however, new to the French asset management industry: before the Law came into force, French investment vehicles could only take one of the following forms:

• a fund, fonds commun de placement, which does not have legal personality; or
• a company having legal personality, organised as a société anonyme or a société par actions simplifiée.

The SLP will co-exist alongside both these existing forms of French investment vehicle.

SLP also considered as AIF

The SLP will be considered as an AIF and, specifically, as a fonds professionel spécialisé – a type of French AIF with very flexible investment rules.

Management and categories of partners

The manager is in charge of the general management of the company and is responsible for any legislative or regulatory infringements, breach of by-laws and any other infringements committed in the course of his management functions. The manager can be freely appointed, in accordance with the provisions of the by-laws, and can also be a general partner (Associé Commandité) or limited partner (Associé Commanditaire). The full portfolio management of the SLP can be delegated to a third party licensed by the French Autorité des marchés financiers (AMF) as an AIFM. In these circumstances, the manager’s responsibilities are not diminished.

• The characteristics of the SLP are similar to those of the Anglo-Saxon and Luxembourg limited partnerships.
• Credit funds established as French specialised professional funds (fonds professionel spécialisés) could take the form of an SLP.
• The SLP benefits from the same French tax treatment as applies to French common funds open to professional investors (fonds professionnel de capital investissement) (previously called fonds commun de placement à risque (FCPR) à procédure allégée).

The general partner may be any natural or legal person designated by the by-laws who has the status of business person (commerçant) under French law and holds an indefinite and solidary liability for the debts of the SLP.

Limited partners must belong to one of the following categories:

• specific institutional investors;
• the manager of the SLP, the portfolio management company (if the SLP delegates its portfolio management), the general partner of the SLP, any undertaking providing management-related services investing directly or indirectly in the SLP, including its directors, employees, and any natural or legal person acting on behalf of such undertaking; or
• an investor whose initial subscription or acquisition amount is at least equal to €100,000. The responsibility of a limited partner for the debts of the SLP is limited to the amount of its investment. The SLP must appoint a custodian, which is a regulated entity.

Notification to the regulator

The creation of the SLP must be notified to the AMF. The detailed provisions of such notification are yet to be published but it is expected that the AMF will exercise certain controls after such notification.

Investment policy

The SLP’s investment policy is defined in its by-laws, and regulatory constraints are very limited. Limited partners may be offered the right to participate, to a certain degree, in the investment decision-making process. Before the Law came into force, this was forbidden – only asset management companies were allowed to make investment/ divestment decisions.

Credit funds should be able to benefit from the new SLP form when they are established as fonds professionels spécialisés.

The SLP should benefit from a fairly secure regime which provides, in particular, that common bankruptcy rules stemming from the French Commercial Code (Code de commerce) should not apply to the SLP.

Tax regime

From a French tax standpoint, the SLP will be treated as the existing fonds professionel de capital investissement. The SLP will not be subject to any French taxation on income and gains derived from its investments. Non-French investors will be subject to French income tax under conditions similar to those which apply in the case of a direct ownership of the underlying investments, except that French taxation will be triggered only upon distribution by the SLP. Non-French investors will not be subject to any French taxation on income and gains derived from investments made by the SLP outside of France. Gains derived from French investments should also generally not be taxable in France. French source dividend will in principle be subject to a withholding tax in France when on-distributed by the SLP (save for tax treaty exemption) and French source interest will generally be free of any withholding tax.

French investors will be taxable under the same conditions as if they had invested in a fonds professionel de capital investissement. Therefore, they will be entitled to opt for a favourable tax regime provided that certain conditions are met and, in particular, that the SLP complies with certain investment quotas.

This article is part of Issue 5 of our Credit Funds Insight for 2015. To see the full publication, please click here.