New UK Limited Partnership For Private Funds

On 6 April 2017, a new form of limited partnership came into existence with the introduction of a 'private fund limited partnership' (PFLP) under the Legislative Reform (Private Fund Limited Partnership) Order 2017 (LRO). The PFLP is intended to make the limited partnership structure more attractive for asset managers and investors by reducing some of the administrative and financial burdens of the LP structure and by clarifying which activities a limited partner can undertake without losing or risking its limited liability. The Government hopes that the new PFLP structure will make the UK an attractive domicile for funds compared to other jurisdictions.

Designation as a PFLP

Existing and new UK limited partnerships may elect to be designated as a PFLP if two 'private fund conditions' are satisfied, namely:

It is constituted by an agreement in writing; and

It is a collective investment scheme (as defined in section 235 of the Financial services and Markets Act 2000 (FSMA). It is expected that most funds and co-investment and alternative investment vehicles will satisfy these conditions.

An existing LP may choose to apply for PFLP status if it fulfils the above conditions by application to Companies House in the UK. Similarly, a new LP may apply to Companies House for registration as a PFLP. Once registered and designated, the registrar will issue a certificate of registration and a certificate of designation as a PFLP or a combined certificate.

An LP that is designated as a PFLP will not be able to reverse the process and return to LP status.

Advantages of a PFLP

Non-exhaustive 'white list' of permitted activities - In a traditional LP a limited partner may not take part in the management of the LP's business without becoming liable for the LP's debts, and there has, until now, been uncertainty as to which activities would amount to 'taking part in the management' of the LP. For PFLPs section 6A of the LRO sets out a non-exhaustive 'white list' of activities a limited partner of a PFLP may carry on without being considered to take part in the management of the business and without losing its limited liability. The 'white list' of activities is particularly intended to cover institutional investors which have a strong interest in the relevant fund and have obligations to their own members or investors. The 'white list' includes:

Taking part in a decision about the variation or waiver of a term of the partnership agreement or...