The Economic Crime and Corporate Transparency Bill – Changes to Limited Partnerships
In December, we discussed the collection of company law reforms proposed by the Economic Crime and Corporate Transparency Bill which, at the time of writing, is passing through Parliament. Here, we will discuss the proposed reform of the law on limited partnerships and Scottish limited partnerships (SLPs).
SLPs are distinct from limited partnerships registered elsewhere in the UK, as they benefit from separate legal personality from that of their partners. This means that an SLP can own property and enter into contracts separately from its partners. SLPs are treated as tax transparent for UK tax purposes with no UK tax payable by the SLP itself. They are often favoured as investment vehicles, mainly for operating funds or possessing commercial property, in part because SLPs can be admitted and registered as a single entity in underlying investment funds where legal personality is required in order to be a partner.
This advantageous business model has, unfortunately, been abused on occasion to enable large-scale international money laundering. Further, limited partnerships, including SLPs, are currently governed by the Limited Partnerships Act 1907, which is now thought to be out of date and unsuitable for the present-day’s legal and business requirements. In 2017, people with significant control (PSC) requirements were expanded to apply to SLPs, however, the continued lack of transparency of limited partnerships continues to be an issue the current Government wants to address.
The Law Society of Scotland has expressed support for the Government in its pursuit to modernise the law to ensure the limited partnership business model is not abused. However, its view is that the Government should be mindful to avoid unduly onerous duties on lawful businesses or creating great administrative burdens which would be disproportionate to the aim of the legislation.
Some of the key features of the Bill in relation to limited partnerships and SLPs are discussed below.
Strengthening information requirements
As is already the case for companies, the Bill proposes that limited partnerships should use a standard system of classification to describe the type of business carried on by it. In addition, the Bill creates the power to impose regulations instructing accounts to be prepared for limited partnerships and, where asked, provide HMRC with relevant accounting information. Companies are currently required to prepare and present accounting information. It is thought this power would be used where it is suspected that fraudulent activity has been carried out or where HMRC receives a request from law enforcement bodies relating to a particular firm.
Mirroring the proposed change for companies, it is suggested that proposed general partners should not be disqualified individuals under the director’s disqualification legislation. It is also required that action should be taken to remove those individuals already acting as general partners who are disqualified.
Several changes to limited partnerships will need to be disclosed to Companies House, failing which a fine may be incurred. These include various changes to the general partners, including changes to a limited partnership’s partners, changes to information about these partners, and changes which happen between submission of the application to create the limited partnership and its registration. Changes to the limited partnership more generally must also be divulged, such as changes to the firm name and place of business. These requirements have been drafted with a view to increase transparency which may help law enforcement agencies by supplying them with the latest information on firms.
Further, some documents, such as the application to register as a limited partnership, notices of changes and confirmation statements of limited partnerships may only be delivered to Companies House by an Authorised Corporate Service Provider. These providers are likely to be intermediaries like accountants and legal advisers who already undertake customer due diligence checks on all of their clients and are required to be registered with a supervisory body for anti-money laundering purposes. It is suggested that these delivery requirements imposed by the Bill will positively add a further layer of inspection, as the provider will conduct their own customer due diligence.
Registered offices and UK connection
Current legislation does not specify whether the principal place of business of a limited partnership can move abroad, as is often done unbeknownst to the Registrar. As such, it is regularly the case that Companies House is unable to get in touch with a limited partnership, which makes it difficult for the Registrar to provide important updates and announcements to LPs. In addition, limited partnerships can be created with no other connection to the UK, with the registration jurisdiction of the vehicle being its only UK-related feature.
The Bill proposes that a limited partnership’s registered office should be at an appropriate address located in the original jurisdiction of registration. The address may be one of the following: the principal place of business (if this does not move outside of the relevant jurisdiction); the usual residential address of a general partner who is an individual; the address of the registered office of a general partner which is a corporate body or SLP; or an address provided by an Authorised Corporate Service Provider. General partners will also be required to keep an appropriate email address.
The Law Society of Scotland supports the continuing requirement to have a connection with the UK. However, it is suggested that the term ‘principal place of business’ is ambiguous and may be difficult to establish as a business may be carried out from multiple sites or as staff may work remotely. We would suggest that some thought needs to be given as to how this will work in practice.
Deregistration of limited partnerships
A limited partnership will be deemed dissolved when it no longer has a general or limited partner. Where a limited partnership is dissolved when a general or limited partner is in place, they must notify Companies House and wind up the firm. Power will also be granted to the Registrar to deem certain firms dissolved. This will allow a more accurate record of live limited partnerships to be maintained and the thousands of inactive partnerships currently on the Register to be removed.
If you have any queries in relation to the Economic Crime and Corporate Transparency Bill, please contact a member of our Corporate team.
