On 28 March 2017, the Government confirmed that a new class of English limited partnership - the private fund limited partnership (PFLP), will come into existence on 6 April 2017. The PFLP is likely to become the default choice for private fund managers using an English limited partnership structure.
The introduction of the PFLP is a welcome step in the modernisation of the English limited partnership regime. In particular, the introduction of a list of permitted actions that limited partners will be able to take without compromising their limited liability status is helpful in providing both investors and sponsors with comfort that the limited partnership advisory committee and consent arrangements customarily included in private fund terms will not result in investors risking their limited liability.
The rest of this update summarises why the PFLP has been introduced, the advantages of the PFLP and the requirements that must be met to qualify as a PFLP.
Why has the PFLP been introduced?
Recognising that other jurisdictions have in recent years created or reformed their limited partnership regimes to accommodate the needs of the modern funds industry, the UK Government has introduced the PFLP to level the playing field and offer private fund managers a structuring solution with better clarity and more flexibility over the traditional English limited partnership.
What are the advantages of the PFLP?
The key advantages of a PFLP over an existing English limited partnership are:
- A PFLP benefits from a "white list" of permitted actions which limited partners in the PFLP can take without being regarded as participating in the management of the limited partnership and so losing their limited liability. This includes, among other matters, voting on amendments to the limited partnership agreement, appointing representatives on a limited partner advisory committee, and approving action proposed by the general partner to be taken on investments. The white list is not intended to change the general principle that limited partners cannot actively participate in the management of the limited partnership; however, it provides welcome clarity that certain matters customarily reserved for limited partners in private funds will not cause those limited partners to risk their limited liability.
- Limited partners in a PFLP are not required to contribute any capital to the partnership. Although this will simplify the administration of the capital structure of the partnership, it is unlikely to have any significant effect in practice since limited partners' commitments to English limited partnerships are typically structured with only a nominal capital contribution, with the remaining commitment being an advance or loan.
- A PFLP is exempt from the administratively cumbersome requirement that exists for an existing English limited partnership requiring any assignments of limited partnership interests to be advertised in the London Gazette.
- A PFLP benefits from a right given to limited partners to appoint a person to wind up the partnership if the general partner is unable to do so.
- A PFLP is also exempt from certain statutory duties imposed on limited partners not to compete with the limited partnership and to render accounts and information of things affecting the partnership to any limited partner. Such obligations usually need to be specifically excluded in the limited partnership agreement for English limited partnerships.
How to qualify as a PFLP?
In order to qualify as a PFLP, the limited partnership must have a written limited partnership agreement and must also be a collective investment scheme. In practice, the vast majority of private funds vehicles should meet these requirements.
An existing English limited partnership may also elect to re-designate itself as a PFLP provided that these requirements are met. However, it will not be possible to change back from a PFLP to an ordinary limited partnership.
As the criteria required to qualify as a PFLP are straightforward, the PFLP is likely to be the default choice for private fund managers using an English limited partnership structure going forwards.
Further information
The Legislative Reform Order (the Order) set to bring in the PFLP by amending limited partnership law will come into force on 6 April 2017. For further information, please click on the Order and the accompanying explanatory memorandum.
