Changes to Limited Partnerships are due to become law in Spring 2023
Anyone establishing a new LP must be aware of these changes, but as set out in this insight, these rules also apply to existing LPs
Are you ready? Changes to Limited Partnerships are due to become law in Spring 2023 as a result of the implementation of the Economic Crime and Corporate Transparency Bill.
As an advisor on the establishment of numerous limited partnerships we have seen many challenges surrounding the quite historic legislation and the potential for loopholes and fraud within the current limited partnership (LP) structure. As we advise on the establishment and ongoing regulatory requirements of an LP, we see that many existing LPs are not aware of the upcoming changes and how they will impact on them, not simply on new LPs.
Clients have asked why there needs to be reform? The main challenge is that LPs registered in England and Wales are not legally separate from their partners and so they cannot be beneficially owned. As a result of this, the problems that the PSC register for limited companies resolved do not apply to LPs — the lack of transparency only leads to the potential for abuse of the structure.
In summary, the upcoming legislation will introduce a new requirement for all LPs, including those based in England and Wales, to present more detailed information about their partners, together with statements confirming the accuracy of the information held about them, to the Registrar.
The Government will introduce reforms which will:
- Tighten registration requirements - require LPs to maintain a connection to the UK - this will require UK LPs, both new and existing, to have a UK registered office (as well as a "principal place of business"). At the moment, LPs must have on commencement a registered office in the UK but are free to subsequently move abroad without any requirement to notify Companies House.
- Increase transparency requirements - for example, requiring more detailed information about partners. What does this mean? To summarise:
- HMRC powers - HMRC will have added powers to demand audited accounts from an LP.
- If the general partner of an LP is a legal entity, then it must appoint a named "registered officer". This officer will have to be one of the managing officers of the general partner. Like limited companies, this will now make it easier to trace significant control or ownership back to a named individual.
- Where a limited partner is an individual, (for example, where carried interest partners are a limited partner), personal information such as their name, date of birth, nationality and usual residential address will have to be provided to Companies House. This information is also required in relation to any registered officers. If a limited partner is a legal entity, the name, registered office address, service address and the form of the legal entity must also be filed. Again, this will make it easier to trace significant control or ownership back to a named individual.
- Enable the Registrar of Companies to deregister LPs which are dissolved - LPs which are no longer carrying on business or where a court determines that it is in the public interest to do so may be dissolved.
As set out above these changes will apply to existing limited partnerships but there will be a transitional period for existing LPs to meet the new requirements.
The transitional period will be six months from the commencement of the new legislation and will give LPs time to submit update statements on newly required information on partners, their registered office address, (which must be in the original jurisdiction of registration), and an email address. LPs that do not comply with this requirement will be deregistered at the end of the transitional period.
LPs which are registered after the Bill is enacted will have to submit a confirmation statement within one year of their original date of registration.
All of this information must be submitted by an authorised corporate service provider, (ACSP), which will be a body that is supervised for anti-money laundering purposes. The Registrar may reject applications and filings that are not made using an ACSP. This includes all applications to register a LP and filings of confirmation statements.
The new legislation will introduce strict penalties which will be applied to the general partners of LPs, (and the managing officers of legal entity general partners), who commit any of the offences listed in legislation. This could include significant fines and even prison sentences.
Anyone establishing a new LP must be aware of these changes, but as set out in this note, these rules also apply to existing LPs. If you (or related entities) are members of historic LP’s great care must be taken to comply. Dissolution could impact on the limited liability of the limited partners or there could be even worse penalties.
If you have any queries regarding this insight, please do contact Patricia Grinyer or any member of our team of finance solicitors who would be happy to assist.
For advice on partnerships, contact our partnership solicitors.