What is changing for UK Limited Partnerships?
The Economic Crime and Corporate Transparency Bill (the "Bill") forms part of a wider set of reforms by the UK government aiming to update existing legislation, tackle financial crime, and improve transparency over various forms of corporate structure in the UK. While core economic crime provisions such as the new offence of failure to prevent fraud have hit headlines, the Bill also introduces changes affecting companies, and significant new requirements for all UK limited partnerships ("LPs").
The UK government has been concerned for some years that LPs could be abused by criminals and the reforms do indeed look to tackle that abuse. However, the changes will increase the administrative burden on all businesses using LPs in the process. The amount of information that needs to be verified and sent to Companies House for a new LP to be registered will increase significantly. Existing LPs will need to be up to date with the new information requirements within a six month transitional period (starting when the relevant provisions come into force). Serious consequences, affecting limited partners as well as general partners, could arise from non-compliance.
The Bill is expected to receive Royal Assent this year. As such, all UK businesses that use limited partnerships should start considering its impact, particularly how they can meet the extra administrative requirements both initially and on an ongoing basis.
Registration and information requirements
- Applications to register LPs must include more information about their partners. For partners who are individuals, this means the name and former names, date of birth, nationality, residential addresses, jurisdiction of usual residency, and (for general partners or "GPs" only) service addresses. For partners who are legal entities, LPs need to provide the name, principal office, service address, legal form and governing law and (GPs only) any register where such partner is included and its registration number.
This information will be on public display at Companies House, save that the precise birthdate and usual residential address for individuals will be masked to the general public (as they currently are for directors of companies).
- GPs must provide an "appropriate email address", meaning an email address to which emails can be sent that will ordinarily come to the attention of a person acting on behalf of the LP. This can be changed by notice to Companies House.
- Provisions will also be introduced to ensure that there is always an individual that Companies House can contact where a GP is a legal entity, which will usually be the case for investment funds and real estate holding structures. These GPs need to provide information about at least one proposed "registered officer", who must be one of its managing officers. If any such GP has a corporate managing officer (regardless of whether that is their registered officer), that corporate managing officer must also maintain a "named contact" at Companies House. The GP must provide the same information about its registered officer as would be provided for a GP that is an individual (see above). For a named contact, this is reduced to their name, usual residential address, and email address.
- The Bill also introduces the possibility of a standard system of classification for LPs other than private fund limited partnerships to specify the nature of their business on their application for registration, similar to companies at present.
Connection to the UK
An LP will always need to have a registered office at an "appropriate address" in the UK where any documents delivered can be expected to be seen. The "appropriate address" must be either the LP's principal place of business, the registered or principal office address of a GP (or for an individual who is a GP, its usual residential address), or the address of an authorised corporate service provider ("ACSP") acting for the LP – provided in each case the address is in the part of the UK in which the LP was registered (e.g. England or Scotland). This represents a significant change for those LPs which, following registration, switch to a non-UK GP and/or make their principal place of business outside of the UK. Businesses which want to continue this practice, including existing LPs with a non-UK principal place of business, will likely need to appoint an ACSP or a second UK-based GP to comply.
The registered office can be changed by giving notice to Companies House, but would still need to comply with the above conditions.
Transitional provisions for existing LPs
Existing LPs will also need to provide all of the new required information in relation to their partners, as well as a registered office, email address and full details of GP registered officers (and named contacts if relevant). They will have a transitional period of six months from when the rules come into force to do so or risk deregistration of the LP. Gathering, verifying and providing this in time could be challenging where the GP does not have that information and depends on co-operation of others, so this will be an important task to plan for given the potential consequences.
Changes to information
- GPs must still notify the Registrar of changes to the LP's name, its principal place of business, and (for non-private fund LPs) the general nature of its business or its term or character, but within 14 days of the relevant change (previously this was seven days).
- The Bill will oblige GPs to notify the Registrar if there are changes to the partners in an LP, but now with all required information about each new partner plus, for any new GP, statements as to proposed registered officers and any corporate managing officers and named contacts (with their required information). The time limit for doing this will be 14 days from the date of the change, so it would be prudent to ensure wherever possible that all the information is available and verified as needed before any change occurs.
- Similarly, GPs must notify the Registrar of any changes in the required information about a partner. Any existing requirement to update information about limited partners' capital contributions will continue to apply (save that the time period to provide updated information will also be 14 days). GPs might consider whether they will in fact know about any such changes in time.
- GPs that are legal entities also need to notify Companies House if their registered officer ceases to be a managing officer of the GP or becomes disqualified as a director, or if their required information changes. For those GPs who have had to provide a named contact for their corporate managing officer, there is also a requirement to notify Companies House within 14 days of that named contact no longer being a managing officer of the GP's corporate managing officer. GPs with corporate managing officers, especially in a large corporate group, will need to ensure that they are informed of changes to be able to comply with this.
Annual confirmation statements
All English LPs will now be required to submit an annual confirmation statement confirming that the information held about it on the register is correct. Scottish LPs already file confirmation statements, though these will now have to cover more information. Existing LPs must file their first confirmation statement within six months of the requirement coming into force and cover all relevant changes, including some information requirements introduced by the Bill from the date of the LP's registration up until that point. The Secretary of State will also have the power to make further provision about information that might be covered by a confirmation statement.
Verification and Use of Authorised Corporate Service Providers (ACSPs)
In the vast majority of cases, including for the registration of a new LP, ACSPs will have to deliver the filings to Companies House. Anyone registered with a supervised body for anti-money laundering purposes could seek to be an ACSP. The requirement for an ACSP includes where information is being provided in connection with a change, which must usually be notified within 14 days of the change occurring. ACSPs will need to have carried out due diligence checks to do this. This is another reason why GPs will need procedures in place to allow them to provide good quality information that an ACSP can confirm and file quickly.
Consequences of non-compliance
Failure to comply with ongoing filing obligations can subject GPs and their managing officers of any UK LP to criminal liability. The primary offence of a failure to file information as required sits with the GP, but a GP that is a legal entity will not be in default unless one of its managing officers is in default. A GP or its managing officer will be considered in default if they authorise or permit, participate in, or fail to take all reasonable steps to prevent the contravention. As yet there is no guidance on what would be considered “reasonable steps”, but perhaps this concept may in time prove useful in defining a GP's obligations where it is dependent on third party limited partners to provide the necessary information.
Additionally, the failure of an existing LP to file the information by the end of the transitional period can result in the LP being dissolved by the Registrar without any warning process. This penalty creates an unwelcome legal risk for GPs and potentially innocent investors, as deregistration would appear to jeopardise the limited liability status of limited partners in an LP.
Note that if the GP itself is replaced and this is not notified to Companies House within 14 days of the change, the new GP is unable to take part in the management of the partnership's business until this is remedied - the prospect of interrupted operations and the commission of a secondary offence is yet another reason to treat the filing obligations seriously. However, the Bill does clarify this does not affect the validity of the new GP's actions.
There are further new offences in the Bill for delivering or making statements to the Registrar which are misleading, false or deceptive in respect of a material detail, and these can apply to limited partners as well as GPs. Verification by an authorised corporate service provider helps to provide some comfort against false statements being made, but will clearly still depend on accurate information being provided.
Power for HMRC to obtain accounts
HMRC will be able to require GPs to prepare and deliver accounts for LPs, together with an auditors' report and supporting evidence prepared in accordance with regulations to be made by the Secretary of State. HMRC can specify the period covered, format and delivery time for these accounts. The breadth of this power has caused some debate, particularly as some LPs are already required to prepare accounts in accordance with existing legislation and there is no guarantee that these accounts would be sufficient for the purposes of the Bill.
Dissolution and winding up
Part 2 of the Bill also introduces powers for the Registrar to deregister Limited Partnerships in certain circumstances, and makes a number of key changes in relation to the dissolution and winding up of LPs. For example:
- It will now be an offence for the GP of a dissolved LP (or the limited partners, where the LP has no GP) to fail to notify the Registrar of the dissolution within 14 days of it becoming aware. In this instance both the legal entity itself and its managing officers may face criminal liability. Imposing an administrative duty on limited partners is unusual, albeit this only applies where no GP remains to carry out the task.
- There is a new obligation to ensure that a dissolved LP is in fact wound up, and again this applies to the GP and then in the absence of a GP to the limited partners. Helpfully, the Bill clarifies that limited partners in a LP that is not a private fund limited partnership will not be deemed to take part in the management of the business merely by the fact they appoint a person to wind up the LP.
- The courts now have the power to order to the winding up of an LP following a petition from the Secretary of State (or the Scottish Ministers) that it would be in the public interest to do so. The court can wind up the LP if it considers that this is "just and equitable".
- The Secretary of State, Scottish Ministers, Department for the Economy in Northern Ireland (as relevant) or any other person appearing to the court to have "sufficient interest" can also apply to the court to make any order it considers appropriate in respect of an LP that has been dissolved but not wound up properly or at all.
- The Registrar now has the power to confirm the dissolution of an LP that it has reasonable cause to believe has been dissolved, which notably can include, absent evidence to the contrary, existing LPs that have not complied with the updating obligations described above. Save in the case of an existing LP that is non-compliant, notices will be published in the Gazette as a warning before dissolution can occur. This creates material risk for limited partners as dissolution and de-registration would appear to mean that if the partnership actually continues business, it would not be doing so as a limited partnership and the limited partners would not benefit from limited liability status with respect to that period. There is a possibility of administrative revival of an LP that has been dissolved prematurely by the Registrar under this power, which depends on all filings being brought up to date and all fines being paid. A court could also hear an application for revival on other grounds. The general effect of a revival would be that the LP is to be treated as having continued in existence as if it had not been dissolved. Nonetheless, it may be necessary to apply to the court for directions to bring the LP "and all other persons" into that position, so revival would likely not be a simple task.
- The Registrar must also remove an LP from the index of limited partnerships as soon as possible once it becomes aware it has been dissolved. GPs will need to manage an LP's winding up process carefully to ensure that dissolution does not occur too early, given the potential effect of de-registration on the winding up process. The ability to remove genuinely dissolved LPs from the index at Companies House is itself welcome and long-awaited, as at the moment interested parties have to search through LP filings to establish if an LP has been dissolved.
- It is also possible for a GP to seek voluntary deregistration.
Power to apply modified company law to LPs
The Bill also provides a wide-reaching power for the Secretary of State to make regulations that would apply provisions of company law to LPs, or to vary their applicability to LPs, as the Secretary of State sees fit. This may concern businesses which appreciate the flexibility and lighter administrative burden that LPs currently possess in comparison to companies.
Importantly, the Bill does not yet extend the scope of the persons with significant control ("PSC") regime to English LPs, which has been a long-standing point of concern within the industry. There is currently no general obligation on English LPs to disclose their partners' beneficial ownership, although this has been debated in the course of the Bill's progress through Parliament.
The content of the Bill is not expected to change substantially as it relates to LPs, so GPs should start now to anticipate the new requirements and consider if they have - or can obtain - the required information from limited partners, both to comply with the initial transitional period obligations and to update that information at Companies House when required.
The Bill will multiply the length of the Limited Partnerships Act 1907 many times and introduces a number of detailed new compliance tasks. We can help GPs identify the scope of their obligations and obtain additional information required, and we can assist with the appointment of ACSPs. GPs may also want to consider whether to review and update their limited partnership agreements.
If you would like to discuss any of the developments in this article, please speak to Amelia Stawpert or your usual contact in our London investment funds team.
Authored by Amelia Stawpert and Alex Jones.