As we all return to work for 2019, we thought it useful to highlight the proposed reforms to Limited Partnership law announced by the UK Government shortly before Christmas.
Our previous article back in April 2018 summarised the UK Government’s call for additional evidence in relation to its consultation on reform of the law on limited partnerships (LPs). Despite the Brexit conundrum plaguing the Government’s very existence, it has taken only five months for the response to the consultation to be published which sets out the Government's proposed changes to the law on LPs. If enacted, the changes are expected to align the regulation of LPs across the UK. As previously noted, the law on Scottish limited partnerships (SLPs) presently differs from the one applicable to all other LPs.
The Proposed Changes
Rather expectedly, in an otherwise unpredictable climate, the Government has decided to adopt its proposals in full and move forward with the following changes to the law:
i. the registration of LPs is to be possible only where the persons or bodies submitting the registration application can demonstrate that they are registered with an anti-money laundering regulatory body (such as the Law Society of Scotland). This will end direct registration of LPs. The Government has suggested that it will consider which foreign jurisdictions could offer the same assurances when it comes to overseas applicants
ii. LPs are to show a tangible connection with the United Kingdom through, for example, having a principal place of business at a UK address. The Government intends to monitor this on application for registration and on an ongoing basis. It remains to be seen how these requirements would be specifically measured by the Government and Companies House
iii. Confirmation Statements are to be filed for all LPs (which is already a requirement for SLPs following a change in the law in 2017). LPs will also have to provide information about their partners in a similar way as required for directors of limited companies. Further changes to the PSC (persons with significant control) regime are also contemplated for the purposes of establishing actual beneficial ownership of LPs. Most importantly, some form of financial reporting for all LPs will be introduced. The Government has promised to avoid any duplication of information already submitted by individuals to HMRC and in their capacity as partners of an LP
iv. Finally, Companies House is to be granted powers to strike off LPs that have not provided the requisite information in a very similar way as Companies House can do in relation to limited companies.
If enacted (and this could be a big “if” in view of scarce parliamentary time), the changes represent a significant shift in the regulation on LPs. Registration and reporting requirements are to become more robust and time-consuming. LPs and their partners will now have to consider a number of issues prior to registration, specifically around the question of having UK based operations. The introduction of financial reporting requirements of some sort will also result in greater costs.
The aim of the Government is to increase transparency and reduce the illicit use of LPs as corporate structures facilitating crime. This will come at a cost which the Government considers proportionate to achieving the aims of the reform. None of the responses to the consultation indicated any envisaged decrease in investment due to the proposed changes.
The biggest hurdle for the Government however may be enforcement of the new provisions by Companies House. Additional resources will most likely be needed by Companies House to enable it to comply with its increased jurisdiction and responsibilities.
We will continue to monitor progress of the proposed legislation, when we should get some clarity on some of the finer details of the changes.
This article was co-authored by Martin Kotsev.