Executive Summary – Lending To Limited Partnerships Against Capital Calls

What are Limited Partnerships? Created under Limited Partnerships Act 1907 Not a separate legal entity Tax transparent Limited partners have liability limited to the amount of their capital contribution, but cannot be involved in the management of the Limited Partnership ("LP"). An LP is managed by its general partner which has unlimited liability The LP is required to be registered at the UK Companies Registry, but unlike a limited company, only very limited information has to be registered Distinguish from an LLP which does have a separate legal entity and operates more like a limited company Due Diligence A lender will wish to examine the limited partnership agreement. Of particular concern will be: The amount of the LP's fixed capital The obligations of limited partners to make capital contributions Who can make calls for capital contributions? Ability of LP to borrow money and create security Terms of LP and manner in which it can be dissolved Term of any delegation by GP of its powers to an FCA authorised manager. Search at UK Companies Registry to check Duly registered Particulars of the LP including details of GP, limited partners and capital amounts contributed Loan Agreement Entered into by GP on behalf of LP, subject to any delegation to FCA authorised manager Bespoke financial covenants in respect of LP and possibly limited partners Events of default with possible cross-default in relation to all/ certain limited partners Negative covenants covering variation to partnership agreement, incurring other indebtedness and granting any other security interests Security over uncalled contributions This constitutes security over an intangible or "chose in action" A capital contribution in the case of a UK LP takes the form of a subordinated loan by the limited partners to the LP Loans by limited partners to the LP are by case law subordinated to other creditors of the LP Normally security over uncalled contributions is taken by way of assignment, but security can also be taken by way of charge If the security is by way of assignment, it will usually be executed by the GP (on behalf of the LP), but may need to be executed by an FCA authorised manager if the GP has delegated its powers to such manager The security required is normally the right to require capital contributions from limited partners, rights over the proceeds of the capital calls and rights to exercise penalties if a limited partner does not comply. It has become the...