UK: Another Way To Reform Limited Partnership Law

Following the responses to its consultation last year on the reform of limited partnership law, the Government has decided to try a new approach. Instead of attempting a thoroughgoing reform in one go, it proposes to introduce changes piecemeal, so that the more straightforward ones can be dealt with relatively quickly while more problematic areas are reconsidered. The Government is seeking views on this approach.

Although it seems sensible to avoid delay where possible, implementing change in a fragmentary fashion can create difficulties. It would be a pity, for example, to end up with a body of law that lacks consistency and coherency in some respects or is not as accessible as it might be.

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The Government has published an update following responses to its consultation in August 2008 on the reform of limited partnership law, which contained proposals for a radical restructuring of the law. Click here to read our previous Law-Now on the consultation.

The impetus for reform is the wish to enhance the UK's position as a jurisdiction of choice for fund managers, who typically set up their funds as UK limited partnerships, and to strengthen investors' confidence in these vehicles. Among its principal aims, the Government wants to give limited partners a more active role in monitoring the business without exposing them to unlimited liability, to increase flexibility for limited partnerships and to streamline the registration process.

The Government received 33 responses to the consultation, and these showed that there was no consensus on many of the key issues. It has therefore decided that a re-think is needed in certain areas. On the other hand, as there is general support for modernisation and clarification of limited partnership law, the Government is now suggesting that it should tackle the reform process in a modular (or piecemeal) way with a series of Legislative Reform Orders (LROs), each on a specific issue. The intention is for the first LRO to ensure that the registration of a new limited partnership is conclusive evidence of its existence, and will require "Limited Partnership", "LP" or Welsh equivalents to be added at the end of a limited partnership's name.

The Government has asked for comments on the modular approach.

Although we see the merit of getting on with the less problematic changes, our preference would be for all of the legislative changes to be implemented through a single LRO, as originally envisaged in the August 2008 consultation. The purpose of the reform is to modernise and update the law in this area. Using a piecemeal approach would mean that only one or two of the reforms could be implemented at a time. This would result in a little-by-little style of reform, with a series of shorter LROs with various implementation dates adding further complication.

Also, many of the topics for reform are interrelated and should be considered at the same time and in the context of the other proposed changes. For example, issues such as same-day registration of limited partnerships, re-registration of all limited partnerships and initial registration should be considered in the round to produce a single, coherent and logical LRO. A single piece of legislation comprising all the changes to limited partnership law would be more accessible to both lawyers and their clients.

Either way there will be a delay before a thoroughgoing reform is achieved. Some salient examples of issues where there is no clear consensus are:

  • whether the list of permitted activities for limited partners should be exhaustive;
  • whether a limited partnership should have legal personality; and
  • whether there should be a new procedure for de-registering limited partnerships if the partnership has been dissolved or does not have a least one limited partner or has not begun to carry on business within two years of registering.

Further consideration by the Government and the business and financial communities will be needed before reform can proceed.

The responses to the consultation can be accessed here.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 11/05/2009.

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